In the UK Self-Assessment system, many taxpayers are required to make Payments on Account - advance payments towards their future tax bill.

Payments on Account help spread your tax liability across the year, instead of paying your entire tax bill in one lump sum after the year has ended.

You’ll usually need to make Payments on Account if:

• Your tax bill for the previous tax year was over £1,000, and
• Less than 80% of your tax was collected through PAYE or other deductions at source

This typically applies to:

• Self-employed individuals
• Landlords with rental income
• Investors and individuals with significant untaxed income

Here’s a simple example:

• You complete your Self-Assessment for the 2023/24 tax year and owe £4,000.
• HMRC assumes your income for 2024/25 will be similar.
• You are asked to make two Payments on Account towards 2024/25:

• When you file your 2024/25 tax return, the actual tax owed is calculated. If you’ve overpaid, HMRC will refund you. If you’ve underpaid, you’ll settle the balance by 31 January 2026.

If you’ve previously worked under PAYE (Pay As You Earn), tax feels much simpler — that’s because:

• Your employer deducts tax and National Insurance from your salary each payday
• You’re always paying tax as you earn — in real time
• There are no large bills at the end of the year (unless your tax code is wrong)

With Self-Assessment, HMRC needs a way to collect tax on income that isn’t automatically taxed - like self-employment income, rental profits, dividends, or side hustles.

Since your tax isn’t deducted automatically, Payments on Account help HMRC collect your tax in advance based on your previous year’s income, similar to how PAYE collects it throughout the year.

Yes. If your income has dropped or you expect to owe less tax for the current year, you can apply to reduce your Payments on Account.

This can help ease cash flow, but you need to be careful - if you reduce your payments too much and still owe more tax when you file your return, HMRC will charge interest on the shortfall.

HMRC can sometimes agree to a Time to Pay arrangement, allowing you to spread your tax payments over a longer period. The key is to act early - the sooner you speak to HMRC, the more options you may have.

• The July payment is an advance instalment towards your next tax bill.
  
• Self-Assessment taxpayers usually pay twice a year: January and July.
  
• PAYE employees pay tax automatically throughout the year - Self-Assessment taxpayers don’t.
  
• Payments on Account help HMRC collect tax more evenly across the year.
  
• You may be able to reduce payments if your income has fallen.
  
• Help is available if you’re struggling to pay.
  

At CJL Accountancy, we help individuals and businesses navigate the UK tax system with confidence. If you're unsure how much you need to pay or whether you can reduce your Payments on Account, we're here to support you.