Payments on Account in the UK – What They Are and How to Reduce Them

If you’re self-employed or receive income outside of PAYE in the UK, you may be required to make advance tax payments known as Payments on Account (PoA). These payments can come as a surprise if you’re new to self-assessment, and they often raise questions. In this article, we’ll explain what Payments on Account are, who they apply to, and how you can reduce them if your income is expected to fall.

What Are Payments on Account?

HMRC asks some taxpayers to pay a portion of their tax bill for the upcoming tax year in advance. This applies if your tax bill for the previous year was more than £1,000 and less than 80% of that tax was deducted at source (e.g. through PAYE).

Payments are made in two instalments:

• First payment: 31st January

• Second payment: 31st July
  

Each instalment is usually 50% of your previous year's tax bill.

Example

Let’s say your tax for the 2023/2024 tax year is £2,000. HMRC will expect you to make two Payments on Account for the 2024/2025 year — £1,000 in January 2025 and £1,000 in July 2025.

If your actual tax liability for 2024/2025 ends up being more than £2,000, you’ll pay the remaining balance by 31st January 2026. If it's less, HMRC will either refund the overpayment or reduce your future instalments.

Why Does This Catch People Off Guard?

One of the reasons Payments on Account can be so unexpected is because they don’t usually apply in your first year of self-employment. So, when you submit your first tax return and pay that bill, HMRC will often ask for an additional payment upfront for the following year. This means your first payment deadline could be almost double what you expected.

How Can You Reduce Your Payments on Account?

If you know that your income is going to be lower in the current tax year, you can apply to reduce your Payments on Account. There are a few ways to do this:

• Through your HMRC online account (Government Gateway)

• Using the HMRC app

• By submitting form SA303

• Through your accountant
  

You’ll need to provide a reasonable estimate of your expected income. For example, your business may be slowing down, or you might have had an unexpected drop in revenue.

Be cautious: If you reduce your Payments on Account and it turns out your income was actually higher, HMRC will charge you interest on the shortfall.

Should You Always Reduce Your PoA?

Not necessarily. If your income is likely to remain the same, lowering your instalments now might just delay a bigger payment later. It's best to assess your situation realistically or speak to a professional before making a request.

Need Help?

At 56 Accountancy, we specialise in helping individuals and small businesses across the UK manage their taxes efficiently. From filing your Self Assessment to forecasting your tax and reducing your Payments on Account, we’re here to take the stress out of your finances.

Get in touch with 56 Accountancy to make sure you're not overpaying tax — or getting caught out by surprise bills. Tamara Kuzminska - 56 Accountancy

Tax Changes You Need to Know About From 6 April 2025

The start of the 2025 tax year brings important updates that could impact your finances. Whether you're a business owner, employee, or property investor, these changes are crucial to understand.

Here’s a breakdown of the most significant tax updates that affect millions of people from 6 April 2025:

1. National Insurance Contributions (NICs)

• Employer NICs have increased to 15% from 13.8%.

• The threshold at which employers start paying NICs has dropped from £9,100 to £5,000.

• Employment Allowance is raised from £5,000 to £10,500, now available to all businesses, including those with a higher NIC liability.

Why it matters: This change will increase employer tax bills, especially for small businesses. The allowance increase offers some relief.

2. Electric Vehicle (EV) Taxation

• EVs are now subject to Vehicle Excise Duty (VED), which was previously only applied to petrol and diesel vehicles.

• New EV owners will face a £10 first-year tax, followed by an annual rate that can go up depending on vehicle value.

• A five-year surcharge for vehicles valued over £40,000 will be applied.

Why it matters: Taxing EVs for the first time marks a significant shift in policy, which means those transitioning to electric cars should now budget for an extra annual cost.

3. Capital Gains Tax (CGT) Rate Increase

• The CGT higher rate has risen to 24% from 20%.

• This impacts individuals and businesses selling assets such as shares, property, and other investments.

Why it matters: Investors and property owners may face higher tax liabilities when selling assets.

4. Stamp Duty Land Tax (SDLT) Adjustments

• The zero-tax threshold for residential properties has been lowered, meaning more buyers will now pay Stamp Duty.

• First-time buyer exemptions have also been reduced, limiting the relief available on property purchases.

Why it matters: If you're buying property, this means higher upfront costs and could impact first-time buyers trying to get onto the property ladder.

5. Council Tax Increases

• Local authorities in England can raise council tax by up to 4.99% without a referendum.

• This increase affects households, with the average Band D council tax now exceeding £2,170.

Why it matters: Property owners and tenants will see higher costs for local services. Budget accordingly for this increase.

6. Non-UK Domiciled Tax Regime Abolished

• The non-domiciled (non-dom) tax status has been abolished.

• Those who were previously taxed on only UK-sourced income and gains will now be taxed on their worldwide income.

Why it matters: If you are a non-UK domiciled individual, you may now be subject to more stringent tax reporting requirements, potentially increasing your tax liabilities.

7. National Minimum Wage Increase

• The National Living Wage for those aged 21 and over will increase to £12.21 per hour, up from £11.44.

• The under 21 rate increases to £10.00 per hour, with the apprentice rate rising to £7.80.

Why it matters: Employers need to budget for higher wage bills, while workers will benefit from a pay boost.

8. Van Benefit & Fuel Benefit Changes

• Both van benefits and fuel benefits will increase. This affects employees who use company vehicles and receive fuel for private use.

Why it matters: Higher taxes on company vehicles mean both employers and employees need to be aware of the increased costs and review their benefit packages.

Final Thoughts

With so many changes coming into effect from 6 April 2025, it’s essential to stay informed and plan ahead. Understanding how these changes affect your business or personal finances can help you avoid unexpected costs and ensure tax compliance.

Tamara Kuzminska - 56 Accountancy

Is HMRC Watching Your Business? Here’s What Could Raise a Red Flag

When it comes to HMRC, it pays to stay under the radar — in the best way possible. While most businesses are never contacted by HMRC beyond the usual, there are a few habits and red flags that can draw unwanted attention. The good news? They're mostly avoidable with a bit of knowledge and some smart accounting.

Here are 8 common triggers that could put your business in the spotlight — and how to avoid them. 1. Big Fluctuations in Income or Expenses

HMRC expects your financial results to follow some level of consistency. Sudden drops or spikes in income, or unusually high expenses from one year to the next, can stand out — especially if there’s no explanation.

What to do:

If you’ve had a bad year (or a great one), document why. Was there a major contract win? A one-off cost? Poor trading conditions? Make sure your accountant knows, and include explanatory notes in your return if necessary.

Tip: Don’t try to “smooth” numbers to avoid suspicion. Transparency builds trust.

2. Too Many People Representing You

One red flag HMRC often looks for is if too many people are involved in representing you, either when dealing with your account or communicating with HMRC.

What to do:

Limit the number of people who handle your tax matters to ensure clarity and consistency in your records. Too many different people can cause mixed messages or discrepancies in the way your information is handled.

Caution: Avoid having multiple people from your team or advisors making decisions or contacting HMRC on your behalf. It can create confusion, and HMRC may question who is really in charge of your financial affairs.

3. Blurring the Line Between Business and Personal Expenses

It’s okay to claim a proportion of an expense if it genuinely serves both personal and business use (like a mobile phone or home internet). But mixing personal costs into your business expenses without logic can raise red flags.

What to do:

• Only claim the business-use portion of mixed expenses

• Ensure all receipts and bills are in your name or the company’s

• Always pay from a traceable account (not cash-in-hand)

Example: If your phone is 70% used for work, claim 70% of the bill. Keep a log if necessary.

4. Consistently Late Returns or Payments

Late filing or payment doesn’t just lead to penalties — it can make HMRC question how organised your business is.

What to do:

Set calendar reminders, use cloud-based accounting software, or let your accountant handle deadline tracking. Consistency shows professionalism.

Tip: Submit early if possible — it gives time to fix any issues.

5. Operating in Cash-Heavy Sectors

Running a cash-based business (like salons, takeaways, or market stalls) isn’t wrong — but it is viewed as higher risk for underreporting. HMRC pays closer attention to industries where income is harder to track.

What to do:

• Keep detailed daily cash logs

• Bank your takings regularly

• Use digital payments where possible to improve transparency

Tip: Avoid large unexplained cash deposits — always match them to sales.

6. Overseas Transactions or Accounts

Foreign income, investments, or bank accounts are fully legal — but they must be properly reported. HMRC now receives data from over 100 countries through the Common Reporting Standard (CRS), so omissions won’t go unnoticed.

What to do:

Report all overseas income, dividends, and assets

Get professional advice if you receive foreign payments or hold offshore accounts

Don’t wait for HMRC to find out — disclosure builds trust

Remember: You must declare foreign property rental income, too — even if it’s already taxed abroad.

7. Figures That Don’t Match Industry Norms

If your profit margins, turnover, or expenses look way off compared to similar businesses in your industry, it may trigger a closer look — especially if your reported profit is unusually low.

What to do:

Review your figures with your accountant. They can help benchmark your business and check for anything that might look unusual from HMRC’s point of view.

Example: A high-income consultancy firm reporting a loss every year might raise questions.

8. Big Turnover, Low Income — Where’s the Profit?

If your business is generating high revenue but showing very little (or no) profit, HMRC might wonder where the money is going. While this can be totally legitimate — especially in high-overhead sectors — it can still prompt questions.

What to do:

• Track all expenses carefully and be able to explain large outgoings

• Ensure director’s loans, salaries, or large supplier payments are clearly documented

• Regularly review margins with your accountant

Example: If you’re turning over £500,000/year but reporting £2,000 in profit, HMRC may ask why — and whether some income is being underreported or diverted.

Tip: Even if you reinvest profits back into the business, document it clearly in your accounts.

Final Advice

Being "on HMRC’s radar" doesn’t mean you're in trouble — but it does mean your numbers may raise questions. The best defence is honest, clear accounting, backed by professional advice.

If you’re unsure about any aspect of your business’s tax position, don’t leave it to guesswork. At 56 Accountancy, we help small businesses stay compliant, efficient, and audit-proof — so you can get back to growing your business. Tamara Kuzminska - 56 Accountancy