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