Small Business Accounting

What are Self Assessment payments on account?

Our guide covers what a payment on account is, how it works, late payment penalties and other key information you need to know


Chris Andreou

Notepad containing relevant data used to complete a self assessment return on a laptop

Paying your taxes can seem complicated for UK tax payers, particularly if you're newly

What is a payment on account?

<p>Paying your <a href="" target="_blank">taxes</a> can seem complicated, particularly if you're newly <a href=">self-employed</a>. There are numerous elements you need to understand and stay on top of, and one of these is the payment on account.</p><p>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.</p><p>Payments on account are <strong>advance payments for your tax bill that are spread out across the year</strong>. You'll need to make two payments each year, and these are due on 31st January and 31st July.</p>

How do payments on account work?

Each payment is half of your previous year's 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 (2020/21), he is required to pay a tax bill of £2,000 in taxes to HMRC by 31st January 2022. He also needs to make payments on account for 2021/22. These are due on 31st January 2022 and 31st July 2022, and each instalment amounts to £1,000 (half of John's previous tax bill of £2,000).  

This means that on 31st January 2022, John is required to pay a total of £3,000.

In filing his tax return for 2021/22, John discovers that his tax for the year is £2,500. As he has already paid £2,000, the amount that is due on his tax bill is £500. This is due on 31st January 2023, as is known as the balancing payment

John has to make payments on account for the 2022/23 tax year. The instalments are due on 31st January 2023 and 31st July 2023, and each tax bill 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 do not pay tax at source on more than 80% of your income

How to make a tax bill 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 self assessment tax return on paper, you'll receive a paper bill and Bank Giro form that you can use to make your payment. 

Penalties for tax bill 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."

How to reduce tax bill 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 and get the same tax deducted in the ensuing tax year. 

Yet, as a self-employed person, it isn't unusual for your income to fluctuate from year to year. Thus, your self assessment tax return for this year might be considerably different from the previous year's tax bill.

If you think that your earnings will be lower than the previous tax year, you can make an application to have your self assessment 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.

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