What are payments on account?

‘Payments on account’ are advance payments towards your tax bill, which you pay to HMRC.

They are designed to help spread the cost of your tax bill. Each payment is around half your previous year’s tax bill (including national insurance if you’re self-employed).

Payments on account are usually due by midnight on:

31 January
and 31 July

Do I need to make a payment in July?

Not everybody needs to make payments on account. Some people just need to pay what they owe by 31 January after the tax year ends.

HMRC will only ask you to make payments on account if:

Your last self assessment tax bill was more than £1,000
And you haven’t already paid more than 80% of the tax you owe at source (for example if you've paid this through PAYE).

If you need to make payments on account, HMRC will show this on your self assessment statement.

Reducing your payments on account

Because ‘payments on account’ are based on your previous year’s tax bill, HMRC is predicting that your current income will be at least equal to your past income. However, if your income has reduced you can apply to have your payments on account reduced.

If you can send in your tax return early, the payment on account due on 31 July will be automatically adjusted once the return is processed. It can therefore help to get your taxes filed early if you know your profits have reduced, for example because of COVID.

Alternatively, if you know your latest year tax bill will be lower than last year, you can also ask HMRC to reduce your payments on account by other methods. You can do this online or by post.

To reduce your payments on account online simply:

Sign in to your online HMRC account
Select the option to view your latest self assessment return
Select ‘Reduce payments on account’

Typical reasons for asking HMRC to reduce your payments on account include:

Your business profits are down
Your other income has gone down
Your tax allowances and reliefs have gone up
The tax you have deducted from income at source is more than it was in the previous tax year

HMRC will ask you to confirm the reduced amount you want to pay. This should be equal to half the tax and class 4 national insurance you expect to have to pay for the year. You should attempt to ensure any claim to reduce is as accurate as possible as HMRC will look at any excessive reductions once your tax return is filed.

As always, if you want any help with this please don't hesitate to ask untied via the link below.

What are payments on account?

Do I need to make a payment in July?

Reducing your payments on account

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