Understanding Payments on Account: What They Are and How You Can Reduce Them

If you’re self-employed or complete a Self Assessment tax return, you’ve likely come across the term Payments on Account. These advance payments can help spread the cost of your tax bill, but understanding how they work—and how to manage them effectively—can save you money and improve your cash flow.

What Are Payments on Account?

Payments on Account are advance payments towards your next tax bill, based on your previous year’s tax liability. HMRC uses this system to ensure you don’t face a large lump sum payment at the end of the tax year.

Typically, if your last Self Assessment bill was more than £1,000 (after tax deducted at source), you’ll need to make two payments on account:

• First Payment: Due by 31 January (along with any balancing payment for the previous tax year)

• Second Payment: Due by 31 July

  
  

Each payment is usually 50% of your previous year’s tax bill. These payments cover your anticipated tax liability for the current tax year.

Why Might Payments on Account Be Higher Than You Expect?

Payments on Account are calculated automatically based on last year’s income. However, if your earnings have dropped this year, or if you have significant allowable expenses, the Payments on Account might exceed your actual tax liability.

This can lead to overpaying HMRC and tying up cash unnecessarily.

Can You Reduce Your Payments on Account?

Yes! If you expect your income for the current tax year to be lower than the previous one, you can apply to reduce your Payments on Account.

This involves estimating your current year’s income and submitting a claim to HMRC to adjust the payments accordingly.

Important: Be cautious when reducing payments. If you reduce too much and end up owing more tax, HMRC may charge interest on the shortfall.

How MW Tax Can Help

Navigating Payments on Account can be confusing, especially when it comes to estimating your income and deciding if reducing your payments is the right move.

At MW Tax, we work closely with self-employed individuals and small business owners to:

• Review your current and past income

• Calculate accurate tax estimates

• Advise if and how much you can safely reduce your Payments on Account

• Handle all communications with HMRC on your behalf

  
  

Our goal is to ensure you pay the right amount of tax—no more, no less—helping you manage your cash flow efficiently.

Don’t Overpay HMRC—Get Professional Support

If your second Payment on Account is due soon (31 July), now is the perfect time to review your position and avoid unnecessary overpayments.

Contact us today for expert advice and support tailored to your circumstances.

Visit www.mw-tax.com or send us a message to find out how we can help you manage your Payments on Account with confidence.