Payments on Account – Why?

One thing HMRC hate is when people owe them money.

And a lot of people owe them money.

Most people get taxed as they go by their employer and the employer passes it on.

But self-employed peeps only pay once a year, and when they get a massive bill, they sometimes have trouble paying it.  (we’ve all been there… right?)

So HMRC have come up with the answer!  Yay?

Payments on account.

If your tax bill is over £1000, they will expect you to pay another half again in your January payment, and another half in July.

So if business is steady, you will have essentially paid in advance for next year.

In theory it works quite well.  But it can be really confusing when your tax bill feels a million miles away from what you have to pay.

Here’s some numbers that might explain it better.

For the tax year ended Apr2023 Tarquin has a tax* bill of £2500.  He has never made payments on account before. He now has to start making payments on account.

In January 2024 he has to pay HMRC the following:

Tax Bill


First Payment on Account


Total to pay Jan2024


He also needs to make another payment in July 2024, for a further £1250.

Seems like a lot, right?

The joy comes in the next tax year.

For the tax year ended Apr2024, Tarquin now has a tax bill of £3000.  In January 2025 he has to pay HMRC the following:

Tax Bill



First Payment on Account



Payments already made


(£1,250 in Jan +£1,250 in Jul)

Total to pay Jan2024



He has another mid-year payment of £1500 to make in July 2025 and so the dance continues.

It works the other way as well, if Tarquin’s tax bill had been lower, and he’d overpaid, he’d get back what was surplus.

So there you have it… clear as mud… right?

*For simplicity, we’re just saying “tax” but it would also include class 4 NI.