Payments on Account Explained: Why Your Tax Bill Can Be Higher Than Expected

Your January payment may cover more than last year’s tax

You’ve worked out your tax bill, put money aside and then discovered HMRC wants more than you expected.

One common reason is payments on account. These are advance payments towards your next Self Assessment bill, not a separate tax. They’re normally due on 31 January and 31 July.

A straightforward example

Suppose your first Self Assessment calculation produces a £4,000 bill that counts towards payments on account. Assume nothing has already been paid and no exception applies.

Your January payment could include:

• £4,000 for the tax year just completed.
• £2,000 as the first payment towards the next year.

That means £6,000 due in January, followed by another £2,000 in July.

The advance payments are then credited against the following year’s bill. Any remaining balance is paid through a balancing payment.

Does everyone have to pay them?

No. You normally do not make payments on account if your previous year’s tax bill was below £1,000, or more than 80% of your tax was paid outside Self Assessment—for example, through deductions from employment income.

What if your income has fallen?

You can ask HMRC to reduce payments on account if you expect a lower bill. But reducing them too far can lead to interest on the shortfall, so the estimate needs care.

The practical lesson is simple: ask about payments on account before deciding how much money to set aside.

Unsure what your next payment covers? Taxlite can help you understand your Self Assessment calculation and plan ahead.