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Payment on account means making advance payments towards your Self Assessment income tax and Class 4 National Insurance Contributions (NICs). If you complete a Self Assessment tax return and owe more than £1,000 in tax, then you’ll make a payment on account towards the following years’ tax bill.

Do I need to make payments on account?

You will make two payments on account each year if:

If you fall under these categories, you will need to make payments on account.

How do I work out payments on account?

Each payment on account is half of your tax bill from the previous year. Watch our video below, which explains how to work out payments on account, or carry on scrolling for an example of payments on account in action.




Payments on account will always be more of a financial burden the first time you pay them. Let’s look at a business that owes £1,000 in tax in their first year, and £1,500 in the second.

The first tax year ends 5th April 2019 and £1,000 tax is due before 31st January 2020. Payments on account will also be due towards the 2020-21 tax year, because HMRC assume you will owe an identical amount the following year.

The first half is due before 31st January 2020, and the second would be due before 31st July 2020. It means that you’ll pay:

In the tax year ending 5th April 2020 the business owes £1,500 in tax, but £1,000 of this has already been paid. The first payment due in January will be £500 plus the first payment on account (for the 2021 year) of £750. That’s a total of £1,250 in January 2021 and the second payment on account of £750 due in July 2021.

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Payments on account and cash flow

Payments on account can be a problem for cash flow if your business profits drop. This is because you are paying more than you will owe towards a future year.

HMRC do allow you to reduce your payments on account if you think this is likely to happen. Just be careful that you don’t reduce them too much, though! If you underpay then HMRC will demand the difference straight away, and you may have to pay interest on top.

Are payments on account a requirement?

If you fit the criteria to make payments on account, you must pay. There are, however, some ways to reduce them.

You can apply to reduce your payments on account if you know your tax and Class 4 NI will be lower next year. You may know this if you’ve lost a large client, for example, or if you pass State Pension age.

Struggling with your own payments on account? Get in touch with our team on 020 3355 4047 or speak to us on Twitter or Facebook. You can also request a free call back.

About The Author

Lee Murphy

MAAT and ICPA accountant, with a passion for making accountancy and bookkeeping accessible. Other interests include cloud-based software development for web and mobile access, keeping fit, reading, and entrepreneurship.

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