{"id":86,"date":"2026-08-07T09:00:00","date_gmt":"2026-08-07T09:00:00","guid":{"rendered":"https:\/\/payslp.com\/blog\/?p=86"},"modified":"2026-08-15T18:06:14","modified_gmt":"2026-08-15T18:06:14","slug":"payments-on-account-explained","status":"publish","type":"post","link":"https:\/\/payslp.com\/blog\/guides\/payments-on-account-explained\/","title":{"rendered":"Payments on Account Explained"},"content":{"rendered":"

If you’re self-employed, your second Self Assessment tax bill can be a genuine shock \u2014 often close to double what you expected. Payments on Account are almost always why, and understanding them in advance saves the surprise.<\/p>\n

How it works<\/h2>\n

If your Self Assessment bill was over \u00a31,000 last year, HMRC assumes you’ll owe roughly the same again this year \u2014 and asks you to pay half of it in advance, on 31 January, alongside your actual bill for the year just finished. A second advance instalment follows on 31 July.<\/p>\n

Why year two feels brutal<\/h2>\n

In your first year of self-employment, you only pay what you actually owe. In year two, you’re paying that plus 50% of an advance estimate for the year ahead \u2014 so your January bill can genuinely be one-and-a-half times your real tax liability.<\/p>\n

Planning for it<\/h2>\n

Setting aside roughly a third of your profit as you earn it, rather than just enough to cover the headline tax bill, is the simplest way to avoid this catching you out.<\/p>\n

Work out your own figures with the Payslp self-employed calculator<\/a>.<\/p>\n

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Can you reduce your Payments on Account?<\/h2>\n

Yes \u2014 if you genuinely expect your income to fall in the coming year, you can apply to HMRC to reduce your Payments on Account<\/a> rather than pay based on last year’s higher figure. Be cautious though: if your income doesn’t actually fall as much as expected, HMRC charges interest on the shortfall.<\/p>\n

Frequently asked questions<\/h2>\n

What if I stop being self-employed?<\/strong>
\nYou can apply to have future Payments on Account reduced to nil, since they’re based on the assumption you’ll have similar self-employment income again.<\/p>\n

Is there a way to avoid Payments on Account entirely?<\/strong>
\nOnly if your Self Assessment bill is under \u00a31,000, or if more than 80% of your tax is already collected at source (for example through PAYE on a separate employment).<\/p>\n

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Related reading<\/h2>\n