Payment on Account

Payment on Account is a way for self-employed people to pay their current tax bill and make an additional payment towards their next one. Basically, you’ll pay 100% of your tax bill plus 50% of your next tax bill in one payment. Before you panic about this huge bill, however, we can help give you some guidance!

How does Payment on Account work?

HMRC expects anyone earning more than 20% of their income outside of employment to pay tax using Payment on Account.

On your first Self Assessment tax return, you’ll have to pay the entire bill, of course. You’ll also have to pay an extra amount. HMRC calculates half of your last tax bill and add it on as an advance payment for this year’s tax bill. Why? Because you can never be too sure who’s planning on paying last year’s tax bill and not this year’s…

If you owe £5,000 in tax, you’ll have to pay an extra £2,500 on top of this to cover part of your next tax bill.

You’ll pay your tax bill and the advance payment before the 31st of January. The next half is due before the 31st of July. If you’re newly self-employed, you may be shocked to find you could end up paying a tax bill up to 50% higher. But fret not, if your next tax bill turns out to be less, your Payment on Account will be adjusted by HMRC to accommodate for the previous overpayment. On the other hand, if you earn more than expected, then you’ll have to pay more tax. This is called a balancing payment.

Frequently Asked Questions

  • How do I know how much I should be paying?

    When you first start your business, there’s a lot to navigate with your accounts, so let our team help you get set up! Our experts are well versed in Balancing Payments and accounting, so contact us today.

  • What happens if I can’t afford to pay in advance?

    If you don’t think that you can make your payment on account, you need to contact HMRC as soon as possible to discuss your circumstances. They may agree a ‘time to pay’ arrangement, however you are likely to be hit with very high interest charges on this so it is not recommended. For advice about your payment on account, contact our team now.

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