A Comprehensive Guide to Self Assessment Payments on Account
Navigating the Self Assessment tax system can be complex, particularly when understanding Payments on Account. At Alexander & Co, our experienced tax advisors and chartered accountants are dedicated to helping you understand and manage these advance payments effectively.
Published by Alexander & Co | Expert Tax Advisors
What are Payments on Account
Payments on Account are advance tax payments towards your next tax bill. For self employed individuals, this also includes Class 4 NI contributions. They are designed to spread the cost of your tax liability over the year, rather than paying a lump sum at the end.
Who Needs to Make Payments on Account?
You are typically required to make Payments on Account if:
- Your Self Assessment tax bill from the previous year was over £1,000.
- Less than 80% of your tax was collected at source, for example, through PAYE.
If your tax bill was less than £1,000 or 80% or more of your tax was deducted at source, you are usually exempt from making these payments.
Payment on Account Deadlines
Payments on Account are made in two separate instalments:
- First Payment: This is due by midnight on 31 January during the tax year.
- Second Payment: This is then due by midnight on 31 July following the end of the tax year.
For example, for the 2024/25 tax year the following dates applies:
- The First payment is due by 31 January 2025.
- The second payment is then due by 31 July 2025.
Calculating Payments
Each payment is typically 50% of the previous year’s tax bill. For example, if your tax bill for 2023/24 was £4,000, you would make two payments of 2,000 each for the 2024/25 tax year.
If your actual tax liability for the year is higher or lower than the estimated amount, you’ll either make a ‘balancing payment’ or receive a refund.
Understanding Balancing Payments
Balancing payments are the difference between your total tax liability and Payments on Account already made. A balancing payment is due by 31 January following the end of the tax year.
For example, if your total tax bill for 2024/25 is £7,000 and you’ve made two Payments on Account of £2,000 each (totalling £4,000), your balancing payment would be £3,000, due by 31 January 2026.
Adjusting Payments on Account
If you are anticipating a decrease in income for the tax year ahead, you can apply to reduce your Payments on Account. This can be done online through your HMRC account or alternatively, by submitting form SA303 to HMRC. However, be cautious; because underestimating your tax liability can result in interest charges on the underpaid amount.
Payment Methods
HMRC offers several methods to make your Payments on Account:
- Online Banking or CHAPS: Ensure payments are made before the deadline.
- Debit or Corporate Credit Card: Personal credit cards are not accepted.
- Direct Debit: this can be arranged through your HMRC online account.
It is crucial to allow sufficient time for payments to process to avoid late payment penalties.
Consequences of Late Payments on Account
If you do not make Payments on Account by the due dates , interest and penalties will be charged:
- HMRC late interest rates are set to be 8.25% as of 28 May 2025, charged daily on the unpaid amount.
- Late Payment Penalties – additional penalties will apply if tax is outstanding 30 days after the 31 January due date.
How Alexander & Co Can Assist
At Alexander & Co, we provide tailored tax advice to ensure you understand and meet your tax obligations. Our services include:
- Calculating accurate Payments on Account.
- Assisting with applications to reduce payments when appropriate.
- Advice on setting up time to pay arrangements with HMRC.
- Ensuring timely submissions to avoid any subsequent penalties.
Our experienced team is dedicated to providing clear, concise, and proactive tax advice, helping you navigate the complexities of Self Assessment with confidence.
Contact Us
For personalised assistance with your self assessment tax returns or any other tax-related queries, please contact Alexander & Co to see how we can assist you:
- Phone: 0161 832 4841
- Email: info@alexander.co.uk
- Website: www.alexander.co.uk
Our offices are conveniently located in Manchester and London, serving clients across the UK.
Payments on Account – Frequently Asked Questions
Q1: What if my income varies significantly from year to year?
If your income fluctuates, it’s advisable to consult a tax advisor to accurately estimate your tax liability and adjust your Payments on Account.
Q2: Can I set up a payment plan if I can’t afford the lump sum payments?
Yes, HMRC offers time to Pay Arrangements, however interest will still be charged on late payments.
Q3: How do I apply to reduce my Payments on Account?
You can apply to reduce these online via your HMRC account. Alternatively you can submit form SA303. Ensure your estimates are accurate to subsequently avoid interest charges.
Alexander & Co – Your Trusted Partner in Tax Advisory Services
This article was written by Louis Moore BFP ACA, Private Client Tax Manager at Alexander & Co. Louis is a Chartered Accountant and a member of the ICAEW
