What are Payments on Account and how do they work for self-employed people?

Payments on Account are advance payments of your next year's tax bill, made in two instalments. HMRC requires them when your previous year's tax bill exceeds £1,000 and less than 80% of your tax was collected at source (e.g. via PAYE). How they work: - First payment: 31 January (same day as balancing payment for previous year) - Second payment: 31 July - Each payment is 50% of your previous year's total tax and Class 4 NI bill Example: if your 2023/24 tax bill was £4,000, you owe £2,000 on 31 January 2025 and £2,000 on 31 July 2025 as Payments on Account for 2024/25. If you expect your income to be lower in the current year, you can apply to reduce your Payments on Account via your HMRC online account — but if you reduce them too much, HMRC charges interest on the shortfall.

• Required if your tax bill exceeds £1,000 and less than 80% collected via PAYE
• Two equal instalments: 50% on 31 January, 50% on 31 July
• Each instalment = 50% of previous year's total tax + Class 4 NI
• You can apply to reduce them if income will be lower — but interest applies if under-reduced
• First-year sole traders often face a 'double bill' on January 31