What are Self Assessment payments on account?

Jordan Macey

May 11, 2021

payment on account guide

Free Download: Self Employed Registration Guide

Download Now ↓
Small Business Accounting

What is a payment on account?

Paying your taxes can seem complicated, particularly if you're newly self-employed. There are numerous elements you need to understand and stay on top of, and one of these is the payment on account. 

To help you get a grasp on the essentials, we've written up a quick guide below. It'll cover what a payment on account is, how it works, late payment penalties and other key information you need to know.    

Payments on account are advance payments for your tax bill that are spread out across the year. You'll need to make two payments each year, and these are due on 31st January and 31st July.

How do payments on account work?

Each payment is half of your previous tax bill. The payment on 31st January is the first advance payment you'll make for the current financial year, and the remaining half will be paid off on 31st July.

This can be confusing, so we've included an example below to explain how it works: 

John is a self-employed repairman. For his first year of business (2018/19), he is required to pay £2,000 in taxes to HMRC by 31st January 2020. He also needs to make payments on account for 2019/20. These are due on 31st January 2020 and 31st July 2020, and each instalment amounts to £1,000 (half of John's previous tax bill of £2,000).  

This means that on 31st January 2020, John is required to pay a total of £3,000.

In filing his tax return for 2019/20, John discovers that his tax for the year is £2,500. As he has already paid £2,000, the amount that is now due is £500. This is due on 31st January 2021, as is known as the balancing payment

John has to make payments on account for the 2020/21 tax year. The instalments are due on 31st January 2021 and 31st July 2021, and each payment amounts to £1,250 (half of John's previous tax bill of £2,500).

Self Assessment Letter from HMRC

Who has to make payments on account?

You're required to make payments on account if:

  • Your last Self Assessment tax bill amounts to more than £1,000
  • You aren't paying tax at source on more than 80% of your income

Self Employed Registration Guide

Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.
Self Employed Registration Guide

How to make a payment on account

If you're submitting your Self Assessment online, you can make your payment on account at the same time.

If you're submitting your tax return on paper, you'll receive a paper bill and Bank Giro form that you can use to make your payment. 

Penalties for late payments on account

According to HMRC, "the first late payment penalty is 5% of any tax unpaid after 30 days". 

"Where a balancing payment or payment on account is still unpaid more than 30 days from the due date for that year's balancing payment, a late payment penalty automatically arises equal to 5% of the tax unpaid at that date."

Self Employed Registration Guide

What's Inside:

  • What is a Sole Trader?
  • Sole trader advantages
  • Sole trader disadvantages
  • How to register self employed
  • Sole trader responsibilities
  • Self employed tax
  • Important self employed deadlines
Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.
Self Employed Registration Guide

What's Inside:

  • What is a Sole Trader?
  • Sole trader advantages
  • Sole trader disadvantages
  • How to register self employed
  • Sole trader responsibilities
  • Self employed tax
  • Important self employed deadlines

How to reduce payments on account

Your payments on account are based on your previous tax bill, as it is assumed that you'll be earning the same income—and as such, be paying a similar tax in the ensuing year. 

Yet, as a self-employed person, it isn't unusual for your income to fluctuate from year to year.

If you think that your earnings will be lower than the previous tax year, you can make an application to have your payment on account reduced. This can be done through submitting Form SA303 online or by post. 

Bear in mind that HMRC may charge interest and impose penalties for underpayments, so it's best to consult our accountants at Forma before you apply to reduce your payments on account.

Self Assessment checklist

Best practice for payments on account

Check your payments on account well in advance of any deadlines:

Conducting regular checks ahead of deadlines will leave you with plenty of time to contact HMRC, in the event that there are aspects you need to clarify.

You can easily do a check online-just sign into your Government Gateway account, and select the option to view your latest Self Assessment return.

This will show payments on accounts that you've made, along with payments you need to make for your next tax bill. 

Get into the habit of saving for your taxes:

If you're newly self-employed, you'll need to get into the habit of setting money aside for your tax bill.

Unsure about how much you need to save? You can use HMRC's ready reckoner. It's a tool that calculates how much you need to set aside for your Self Assessment tax bill, based on your estimated weekly or monthly profit.

Read More Guides below:

Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.
How do I pay my self assessment? Guide

How do I pay my self assessment?

There are various ways to pay your Self Assessment Tax bill.

Same or next day

You need a paying-in slip from HMRC to pay at a bank or building society.

3 working days

5 working days

Read Full GuideRead Full GuideCalculate Now

Download Now:

Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.
What is a Self Assessment tax form SA100? Guide

What is a Self Assessment tax form SA100?

The SA100 is the main document you need to fill when completing your Self Assessment tax return. There are two ways to complete your Self Assessment tax return: you can make an online submission, or download the form SA100 and make a paper submission.

Read Full GuideRead Full GuideCalculate Now

Download Now:

Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.
Self Assessment tax returns for the self employed Guide

Self Assessment tax returns for the self employed

If you're self-employed-either as a business owner or freelancer-you will need to complete a Self Assessment tax return.

It's one of the most important tax documents you will need to handle, and there are numerous details you'll have to keep in mind, including deadlines and late penalties.

Our guide offers a quick overview of the essentials-so it's just the article you need if you're getting started.

A Self Assessment (or Self Assessment tax return) is a form that business owners are required to submit to HMRC every year. It details how much you've earned and your sources of income, which enables HMRC to work out the Income Tax and National Insurance you need to pay.

This applies to self-employed workers, who-unlike employees-don't have their income tax automatically deducted from their salaries.

-

Read Full GuideRead Full GuideCalculate Now

Download Now:

Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.
What are Payments on account? Guide

What are Payments on account?

Payments on account are advance payments for your tax bill that are spread out across the year. You'll need to make two payments each year, and these are due on 31st January and 31st July.

Read Full GuideRead Full GuideCalculate Now

Download Now:

Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.
When is the next self assessment deadline? Guide

When is the next self assessment deadline?

The deadline for filing Self Assessment is 31 January following the tax year end. For example, the deadline for the 2020/2021 tax year is 31 January 2022.

Payments for your tax bill are due on 31st January after the end of the relevant tax year. If you're making payments on account, there are two payments due each year on 31st January and 31st July.

Read Full GuideRead Full GuideCalculate Now

Download Now:

Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.
How to pay your Self Assessment Tax Guide

How to pay your Self Assessment Tax

You may already be familiar with the process of paying your Self Assessment tax bill.

Yet, it's always helpful to have a guide on hand-one that you can look over just before you make your payment, so you can be sure that you haven't missed out on important details that can put you at risk of incurring a penalty.

  • Submission of Self Assessment tax return: You need to submit your online tax returns by 31st January. Paper returns are due earlier; these must be filed by 31st October.
  • Payment: Any personal tax due for the previous tax year (6th April-5th April) must be paid up by 31st January. This means that your 2019/20 tax year must be paid up by 31st January 2021.
  • Payments on Account: "Payments on account" are advance payments for your tax bill that are spread out across the year. You'll need to make two payments each year, and these are due on 31st July and 31st January.

Tip: If the payment deadline falls on a public holiday, make sure that your payment is submitted by the final working day.

Read Full GuideRead Full GuideCalculate Now

Download Now:

Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.
When do I need to pay my self assessment tax bill? Guide

When do I need to pay my self assessment tax bill?

Payments for your Self Assessment tax bill are due on:

  • 31st January: You'll need to pay tax that you owe for the previous tax year, as well as your first payment on account. For the 2020/21 tax year, the first payment on account is due by 31 January 2021, while the balancing payment is due on 31 January 2022.
  • 31st July (following the end of the tax year): You'll need to pay your second payment on account. For the 2020/21 tax year, the second payment on account will be due on 31 July 2021.
Read Full GuideRead Full GuideCalculate Now

Download Now:

Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.
What are Self Assessment payments on account? Guide

What are Self Assessment payments on account?

Paying your taxes can seem complicated, particularly if you're newly self-employed. There are numerous elements you need to understand and stay on top of, and one of these is the payment on account.

To help you get a grasp on the essentials, we've written up a quick guide below. It'll cover what a payment on account is, how it works, late payment penalties and other key information you need to know.

Payments on account are advance payments for your tax bill that are spread out across the year. You'll need to make two payments each year, and these are due on 31st January and 31st July.

Read Full GuideRead Full GuideCalculate Now

Download Now:

Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.
What are Self Assessment Tax Returns? Guide

What are Self Assessment Tax Returns?

A Self Assessment (or Self Assessment tax return) is a form that business owners are required to submit to HMRC every year. It details how much you've earned and your sources of income, which enables HMRC to work out the Income Tax and National Insurance you need to pay.

Read Full GuideRead Full GuideCalculate Now

Download Now:

Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.
Calculator on mobile used to calculate the tax on a benefit in kind (BIK)
Featured Article

What are benefits in kind?

The rules surrounding benefits in kind explained concisely

Read more

Self Employed Registration Guide