Understanding Payment on Account
- Adil Akhtar
- 3 hours ago
- 21 min read
Payment on Account in Plain English: What It Is, Who It Hits, and How to Check Yours
What’s the quick answer?
Payment on account is HMRC’s way of getting advance instalments toward your next Self Assessment bill. If, after a tax year, you owe more than £1,000 and less than 80% of your total tax was already collected at source (for example via PAYE), you’ll normally be asked to pay two instalments, each 50% of last year’s bill: one due 31 January and the other 31 July. You’ll then settle any difference with a balancing payment the following 31 January. GOV.UK+1
Why should you care right now (2025/26 figures)?
For 2025/26, the standard Personal Allowance stays at £12,570, with main UK tax bands (outside Scotland) at 20% basic up to £50,270, 40% higher to £125,140, and 45% additional above that. Because thresholds are still frozen, more people drift into higher bands—so payments on account can bite even if your income only crept up. GOV.UK+2GOV.UK+2
Think of it like this…
Analogy time: imagine your tax bill is a yearly energy bill. If last winter was cold (your tax bill was big), your supplier expects next winter to be similar—so they ask for monthly payments in advance. HMRC does something similar: it looks at last year’s liability to estimate how much you’ll owe next year and splits that into two payments on account. If next year turns out warmer (lower profits), you can ask to reduce those payments—carefully. GOV.UK
Who actually has to make payments on account?
● You file Self Assessment and your previous year’s bill (after PAYE and other deductions) was over £1,000; and
● Less than 80% of your total tax was collected at source. If your bill was £1,000 or less, or 80%+ was already collected (for example, because you’re mostly PAYE), you’re usually exempt. GOV.UK
Key 2025/26 income tax bands (England, Wales, Northern Ireland)
Band | Taxable income | Rate |
Personal Allowance | Up to £12,570 | 0% |
Basic rate | £12,571 – £50,270 | 20% |
Higher rate | £50,271 – £125,140 | 40% |
Additional rate | Over £125,140 | 45% |
These are the bands HMRC broadly uses when projecting next year’s tax from last year’s results—so they drive whether your payments on account feel fair or not. GOV.UK |
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What about Scotland and Wales?
Scotland sets different bands and rates, including extra bands such as Starter and Intermediate, and (in recent proposals) Advanced above higher rate—so Scottish taxpayers can see very different liabilities from the same income. Wales currently mirrors the main UK bands for rates, with a Welsh element administered through PAYE. If you live in Scotland (your main home), model your estimate using the Scottish bands before deciding to reduce payments. Scottish Government+1GOV.UK
The two dates you must never miss
● 31 January (after the tax year ends):
○ File your return (unless already filed earlier)
○ Pay the balancing payment for the year just ended
○ Pay the first payment on account for the current year
● 31 July:
○ Pay the second payment on account Missed or underpaid amounts accrue interest, so even a well-meant reduction can cost you if you guessed too low. GOV.UK+1
A quick “do I owe payments on account?” checklist
● Did your last Self Assessment bill (after PAYE/CIS deductions) exceed £1,000?
● Was less than 80% of your total tax collected via PAYE, bank interest deduction, CIS, or other sources?
● Did you have dividends above the £500 allowance, rental profits, or sole-trade profits that pushed the bill up? If you’re nodding along, expect payments on account—unless you’re in Scotland and the bands significantly change the picture. GOV.UK
A real client-type story: “How Emma got caught out in July”
Picture this: you’re Emma, a London-based marketer employed through PAYE who also freelances on the side. Her employer deducted tax correctly, but a strong side-hustle year meant her Self Assessment bill hit £3,200. Because PAYE hadn’t covered 80% of her overall tax and the bill was over £1,000, HMRC asked for £1,600 in January and another £1,600 in July as payments on account for the new year—on top of the January balancing payment for last year. Emma hadn’t earmarked cash for July, and the surprise nearly derailed her holiday plans.
What we did:
● Set up a Budget Payment Plan by Direct Debit to drip-feed cash to HMRC through the year.
● Reviewed whether income would fall the following year; when it did, we reduced the payments on account via the online service, avoiding overpaying—but we left a safety margin to avoid interest later. GOV.UK+1
Step-by-step: How to see (and, if needed, reduce) your payments on account
Sign in to your personal tax account (or the HMRC app). GOV.UK
Go to Self Assessment and view your latest return.
Select “Reduce payments on account” if your profits are genuinely down, you’ve increased pension contributions, or you now have more tax deducted at source (for example, PAYE on a new job). GOV.UK+1
If you prefer paper, complete form SA303 and post it to HMRC (agents can also file reductions). GOV.UK+1
If you later discover you under-reduced (i.e., your income rebounded), pay the shortfall quickly to cut interest. HMRC will charge interest on any underpayment caused by an excessive reduction. GOV.UK
Worked example: last year’s bill £3,000 — what happens?
● January (Year 2):
○ You pay your Year 1 balancing bill (if any).
○ You also pay £1,500 as your first payment on account for Year 2 (50% of £3,000).
● July (Year 2):
○ You pay £1,500 as your second payment on account.
● January (Year 3):
○ If your actual Year 2 liability comes to, say, £3,600, you’ll owe a £600 balancing payment then. If it’s £2,400, you’ll be due a £600 refund or credit. This is HMRC’s default rhythm—unless you submit a valid reduction. GOV.UK
Where PAYE employees often stumble (especially with side income)
None of us loves tax surprises, but here’s how to avoid them: if you’re salaried and dabble in consulting, Airbnb, or dividends, make sure your PAYE tax code and personal tax account reflect the extra income—or accept that Self Assessment + payments on account are likely. I’ve seen many employees assume the payroll deductions “cover everything,” only to discover a January bill and the new July instalment. Check your code and update estimates early. GOV.UK+1
High Income Child Benefit Charge can tip you into payments on account
Be careful here, because I’ve seen clients trip up when HICBC nudges their bill past £1,000. If your adjusted net income exceeds £60,000 in 2024/25 and 2025/26, you may face the charge, which increases your Self Assessment liability and can trigger payments on account for the next year. If you’re flirting with the threshold, consider pension contributions to manage adjusted net income. GOV.UK
Dividend and rental income: small amounts still matter
From 2024/25 onward the dividend allowance is £500. Even modest portfolios can generate taxable dividends that push you into Self Assessment and, combined with other untaxed income, tip your bill over £1,000. Landlords: keep a close eye on property profits (after allowable expenses) because they’re rarely taxed at source. GOV.UK+1
Quick table: how payments on account interact with different taxpayer types
Taxpayer type | Typical trigger | What to watch |
Employee only (PAYE) | Rare (unless benefits in kind or coding issues create >£1,000) | Keep tax code updated; use Check your Income Tax service |
Employee + side hustle | Very common | Allocate cash monthly; consider Budget Payment Plan |
Sole trader/freelancer | Standard | Profits volatility—use cautious estimates before reducing |
Company owner-manager | Dividends above £500 + salary mix | Timing of dividends; avoid “surprise” July cash squeeze |
Landlord | Rental profits | Interest restrictions and expenses—plan cash flow |
The “watch” column is where I focus planning with clients—those small admin steps prevent the painful July scramble. GOV.UK+1
How to double-check HMRC’s figures before you pay
Now, let’s think about your situation—before paying the July instalment, do a quick reconciliation:
Download or view your Self Assessment statement inside your personal tax account—confirm amounts requested and allocated. GOV.UK
Compare last year’s actual profits vs. year-to-date profits now. If your current year profits are materially down, consider a reduction (see steps above). GOV.UK
Cross-check PAYE: did you change jobs, add a pension, or see a coding notice that increases tax deducted at source? If yes, HMRC may already be collecting more, weakening the case for big payments on account. GOV.UK
If in doubt, part-reduce rather than slash to zero—this avoids interest if income rebounds. GOV.UK
Case study: “Tom the contractor” (IR35 year and a half)
In my years advising clients in London, one contractor—let’s call him Tom—shifted from outside IR35 contracts to an umbrella role mid-year. First half’s profits created a chunky Self Assessment bill; second half’s PAYE meant more tax at source. HMRC still generated payments on account based on the profitable first half. We filed the return early, then used SA303 to reduce the upcoming instalments to reflect PAYE now covering the bulk of his tax. Result: no overpayment and no interest. GOV.UK
Practical worksheet: your five-minute cash test (keep it simple)
● A. Last year’s tax (from SA302 / HMRC statement): £__________
● B. Each payment on account (50% of A): £__________
● C. Expected current-year profit/dividends/rental: £__________
● D. Expected PAYE/CIS deducted this year: £__________
● E. Any major changes? (pension increase, moved to PAYE, Scottish bands, new child benefit situation) — Note them.
● Decision: Pay as requested / Reduce modestly via online account / Submit SA303 Revisit this at the end of each quarter—it’s what I do with clients so we’re not guessing in July or January. GOV.UK+1
Paying smart: methods that protect you from slips
If cash flow is lumpy, consider a Budget Payment Plan to spread the load weekly or monthly by Direct Debit. If you need to pay a one-off amount, Faster Payments or online banking usually arrives same or next day—handy near deadlines. Always check HMRC’s pay Self Assessment page for the latest methods and cut-offs. GOV.UK+1
What if your estimate was wrong?
So, the big question on your mind might be: “What if I reduced too far?” If your final bill is higher than the total you paid on account, you’ll owe a balancing payment plus interest on the shortfall; if it’s lower, HMRC will refund or credit the difference. File early if possible—earlier filing replaces guesswork with actuals, which can automatically reset or justify reduced payments. GOV.UK
One more corner case I see a lot
Employees moved mid-year to Scotland (or vice-versa). Your tax residence for rates follows where your main home is for most of the year. If that changed, HMRC’s projection can be off, especially if your PAYE code lagged behind the move—so payments on account may be too high or too low. Update your personal tax account details and—if necessary—reduce payments with a sensible buffer. GOV.UKScottish Government
Payment on Account Calculator
Running the Numbers: Real-World Payment on Account Scenarios and Calculations
Why run through actual numbers?
Because, frankly, this is where most taxpayers get caught out. On paper, the rules look simple enough: two instalments, each 50% of last year’s bill. But the reality of PAYE deductions, fluctuating profits, and side hustles means the maths often catches people by surprise. Let’s break it down with examples I’ve seen in practice, and walk through how to calculate payments on account for different situations.
Scenario 1: The classic self-employed sole trader
Take Sarah, a Manchester-based graphic designer.
● Tax year 2024/25: profits £40,000.
● After personal allowance (£12,570), her taxable income was £27,430.
● Tax at 20% = £5,486. No higher rate exposure.
● HMRC billed Sarah £5,486 for 2024/25.
Now, because she owed over £1,000 and had no PAYE deductions, she fell squarely into payments on account.
For 2025/26, HMRC will assume a similar liability and ask for:
● 31 Jan 2026: £2,743 (first half)
● 31 Jul 2026: £2,743 (second half)
So in January 2026, Sarah owes not just her £5,486 balancing payment for 2024/25, but also £2,743 for the new year — a total of £8,229.
Practical tip I give clients: always think of January as a double-whammy month — balancing + first instalment. Put aside at least 30% of profits monthly to cushion the blow.
Scenario 2: Employee with PAYE plus side hustle
Now meet David, employed in Birmingham earning £45,000 PAYE, plus £10,000 tutoring on the side.
● PAYE covers his employment tax — about £6,432 deducted at source.
● His £10,000 side hustle profit is fully taxable. After personal allowance already used up by PAYE job, the £10k sits in the higher-rate band (40%).
● That’s £4,000 extra tax liability via Self Assessment.
Because PAYE didn’t cover 80% of his overall liability (that extra £4k pushed him over the line), HMRC demands payments on account:
● Jan 2026: £2,000 (first instalment)
● Jul 2026: £2,000 (second instalment)
Add to that his balancing payment for 2024/25 (the £4,000 itself), and David is staring at a £6,000 bill in January.
I’ve had clients in this exact situation call me in panic. The answer is foresight: if you’re running a side hustle, set aside 20–30% of that income in a separate account. Don’t treat it as “free cash.”
Scenario 3: Limited company director taking salary + dividends
Here’s Priya, who runs her own marketing consultancy as a limited company.
● She takes £12,570 as salary (covered by personal allowance).
● She then draws £30,000 in dividends.
● Dividend allowance (2025/26) is just £500. The rest falls into taxable bands:
○ £2,000 in basic rate (8.75%) = £175
○ £27,500 in higher rate (33.75%) = £9,281.25
Her tax bill is £9,456.
Because all of this falls under Self Assessment and PAYE didn’t touch it, Priya owes:
● Jan 2026: £9,456 (balancing for 2024/25) + £4,728 (first payment on account for 2025/26).
● Jul 2026: £4,728 (second payment on account).
That’s £14,184 due in January alone. This is why many directors get caught short — they think dividends are “tax-free” because no deductions happen at source.
Scenario 4: Scottish taxpayer with mixed income
Let’s not forget Scotland’s different bandings. Imagine Ewan from Glasgow:
● Employment income: £35,000 PAYE
● Rental profits: £7,000
Scottish bands mean that much of Ewan’s rental income falls into the Intermediate rate (21%) or Higher rate (42%), depending on thresholds.
His PAYE employer deducts correctly for his £35k salary, but the £7k rental profit triggers about £1,470 in extra tax. Because that’s above £1,000, HMRC sets payments on account: two instalments of £735 each.
The trap? Many Scottish taxpayers forget that the rates differ, so they underestimate the impact of “just a small rental.”
Scenario 5: Irregular contractor (IR35 confusion)
Now picture Tom, a contractor in London (I touched on him earlier).
● First 6 months: working outside IR35, £60,000 gross, taxable profits after expenses £50,000.
● Next 6 months: caught by IR35, umbrella company taxes him under PAYE at source.
HMRC’s system looks at his whole-year return. Because of those first 6 months, he ends up with a large balancing liability. But payments on account are initially based on the assumption he’ll keep earning like that.
We filed his return early, showed HMRC his PAYE for the latter half, and submitted a reduction (SA303). Without that, he’d have massively overpaid.
Common calculation errors I see every January
● Forgetting the July payment: People often plan for January but not July.
● Assuming PAYE “covers it all”: Side hustles, dividends, and rental profits usually aren’t deducted at source.
● Misunderstanding the 80% rule: Even if your employer covered most tax, if it’s less than 80% overall, payments on account may apply.
● Not factoring in Scottish rates: Different bands = different payments.
● Ignoring allowances tapering: For incomes over £100,000, your personal allowance shrinks. That boosts liability and inflates payments on account.
Checklist: run your numbers before January
Here’s a step-by-step worksheet I give clients before Christmas:
What was last year’s final tax bill?
○ Look at your SA302 or HMRC account.
Did you owe over £1,000 after PAYE and deductions?
○ If yes, expect payments on account.
Was at least 80% collected at source?
○ If no, payments apply.
Divide last year’s bill by 2 → that’s your instalment size.
Check this year’s position: are profits up, down, or flat?
○ If down significantly, consider reducing payments.
Review life changes: moved to Scotland, hit child benefit charge, received dividends, bought/sold a rental?
Decide early: pay as requested, reduce via online account, or budget for the July hit.
Where to find the official figures
Don’t just trust memory — log into your HMRC personal tax account or Self Assessment portal and look at the “Statement of Account.” It shows:
● The balancing payment due
● The first and second payments on account
● Any credits or refunds
That’s the baseline to compare against your current year’s numbers.
How to stress-test your own forecast
One exercise I set clients:
● Plan three scenarios — pessimistic, realistic, optimistic.
● Calculate payments on account under each.
● See if your cash flow holds up in the worst case.
This way, a lean quarter or lost contract won’t leave you short in July.
Key lesson so far
Payments on account don’t have to be scary — but they’re predictable only if you run the numbers ahead of time. In the next part, I’ll dig into advanced planning: how to legally reduce exposure, time dividend withdrawals, use pensions, and where a tax accountant adds value in navigating all this.
UK Payment on Account Statistics
Reducing the Burden: Planning, Reliefs, and Professional Help
Why careful planning matters
Payments on account are not “extra tax” — they’re simply advance instalments. But without planning, they feel like a nasty shock. The good news is: with foresight, you can smooth cash flow, avoid overpaying, and even reduce the bill legitimately.
How to reduce payments on account (legally)
1. Claim to reduce (SA303 or online account)
If you know this year’s income will be lower than last year’s, you can apply to reduce payments on account.
● Example: if you earned £60k last year but expect £40k this year, there’s no point overpaying.
● File online through your Self Assessment account or send form SA303.Caution: if you reduce too much and your tax turns out higher, HMRC charges interest (and sometimes penalties).
2. Make pension contributions
Personal pension payments attract tax relief and reduce taxable income. This can:
● Drop you into a lower band, reducing liability.
● Reduce (or eliminate) payments on account for the following year.
Example: earning £52,000, you’re in higher rate. Contribute £3,000 gross to a pension, and you reclaim £600 tax relief through your Self Assessment.
3. Timing dividend withdrawals
Company directors can choose when to take dividends.
● If you delay dividends into the next tax year, you reduce the current year’s liability (and thus next year’s payments on account).
● Useful if you’re already facing a heavy January bill.
4. Use capital allowances and expenses wisely
Self-employed? Consider timing big purchases.
● Buying equipment before 5 April may reduce taxable profits, lowering payments on account.
● Remember: only genuine business expenses count — HMRC is strict.
5. Child Benefit High Income Charge planning
If income creeps over £50,000, the High Income Child Benefit Charge applies. Payments on account often catch people here.
● Pension contributions or Gift Aid donations can bring adjusted net income back below £50k, avoiding the charge.
6. Budget monthly, not annually
A simple but effective tip: put aside 20–30% of untaxed income into a separate account each month. By January, you’ll have funds ready.
● Many of my clients use an instant-access savings account labelled “Tax Pot.”
7. Pay early if it suits cash flow
You don’t have to wait until January or July. HMRC lets you make payments in advance.
● Handy if you have a surplus month and want to chip away at the balance.
Why a tax accountant can be worth it
Hiring a professional might feel like an extra cost, but here’s how we typically save clients money (and stress):
Accurate forecasting — spotting if payments on account are too high (or too low).
Relief maximisation — ensuring pensions, Gift Aid, expenses, and allowances are fully used.
Strategic timing — advising when to take dividends, bonuses, or investments.
Cash flow planning — building realistic payment schedules, so January and July don’t wreck your budget.
Representation — if HMRC queries your figures, an accountant can handle correspondence.
Avoiding penalties — ensuring deadlines are never missed.
For some, the saving in tax and stress outweighs the fee many times over.
Common mistakes a tax accountant helps you avoid
● Reducing payments too aggressively and racking up interest.
● Forgetting the July payment when budgeting.
● Not claiming available allowances (trading allowance, marriage allowance, etc.).
● Confusing PAYE deductions with total liability.
● Overpaying dividends in one year instead of spreading them.
Practical timeline for managing payments on account
April–June
● Review last year’s results.
● Forecast current year income.
● Decide if payments should be reduced.
July
● Pay second instalment (unless reduced).
● Adjust forecasts for the year to date.
September–October
● Get draft accounts prepared early.
● Adjust cash flow plans if profits are significantly up or down.
November–December
● Stress test three scenarios: pessimistic, realistic, optimistic.
● Set aside additional reserves if needed.
January
● File return and pay balancing + first instalment.
● If needed, apply to reduce July’s payment.
The golden rules of payments on account
They’re not extra tax — just advance instalments.
Expect a double hit in January: balancing + first instalment.
If profits are falling, apply to reduce — but be realistic.
Always budget for both January and July.
Use pensions, Gift Aid, and timing strategies to reduce liability.
Scottish taxpayers: remember different bands.
PAYE employees with side hustles: don’t assume payroll covers you.
Dividends = no tax at source, so Self Assessment always bites.
Keep a monthly “tax pot” savings habit.
When in doubt, get a tax accountant — it usually pays for itself.
FAQs
Q1: Can someone change their tax code if it’s incorrect and avoid getting hit by payments on account?
A1: Well, it's worth noting that your tax code determines how much PAYE tax comes off your salary, so if it's wrong—say you're still on a standard code despite side income—that shortfall can push you into payments on account territory. In my experience, correcting your tax code early in the year can reduce the chances that PAYE undercollection pushes you over £1,000 in Self Assessment. Always check your personal tax account and notify HMRC if the code is off—it’s better to fix now than face surprise instalments.
Q2: What’s the quickest way to check how much Self Assessment tax someone owes so they can spot if they’ll get payments on account?
A2: In my practice, the go-to is logging into the HMRC personal tax account—go to “Self Assessment statement,” and you’ll see your balancing payment, plus the first and second payments on account if triggered. It’s much faster and more accurate than manual estimates. For someone juggling multiple incomes, that statement often reveals if payments on account are about to land unexpectedly.
Q3: Does having pension income through a SIPP impact payments on account?
A3: It sure can. Pension income via SIPP doesn’t automatically get taxed at source unless you choose so—many people forget that. If you draw from a SIPP and don’t update your tax code, you could compound your total bill and lengthen your payments on account. I often advise clients to check whether their SIPP provider is sending a tax code or if they need to factor the SIPP draw into Self Assessment to avoid surprises.
Q4: In my experience with freelancers, what happens when someone has fluctuating income—can they split reduction of payments on account?
A4: Here's a scenario I’ve seen: a freelancer in Leeds expects a slow second half after a booming first half. HMRC splits payments on account equally—so they reduce both by the same amount. You can’t reduce one instalment and not the other—they’re locked together. It’s critical to forecast your full-year position before filing SA303. Reducing one without sensitivity to the other often leads to interest charges later—so the balance is key.
Q5: How do multiple jobs affect payment on account calculations?
A5: If you're in two PAYE jobs, one might cover more of your tax due, but HMRC treats total assessed tax across jobs when determining payments on account. If combined tax under-collection brings your Self Assessment bill above £1,000, you’ll still face instalments. I once worked with shop owners in Birmingham who held part-time roles alongside seasonal side gigs—only realising after January that their combined tax liability had triggered payments on account unexpectedly.
Q6: Can losses from one source (like self-employment) offset income and reduce payments on account?
A6: It can—but you’ll need to declare the loss in your return. Say you run a small business and incur a loss this year; that loss can offset your other Self Assessment income, reducing the overall liability. That can, in turn, reduce the following year’s payments on account. I've helped several clients save instalment burden simply by capturing genuine losses—just make sure you keep solid records.
Q7: What about the High Income Child Benefit Charge—does it trigger payments on account?
A7: Definitely. HICBC adds to your Self Assessment bill. If your adjusted net income exceeds £60,000, that charge can push your liability over £1,000, triggering payments on account. I’ve had clients surprised when HICBC inflation creep wasn’t captured in the PAYE code—so suddenly they had two big instalments they hadn’t budgeted for. If you’re close to the threshold, consider pension contributions or Gift Aid to tread carefully.
Q8: Can someone ask HMRC to collect payments on account through their PAYE code instead?
A8: It's a common mix-up, but generally no—payments on account must be paid separately, not via PAYE. However, you can adjust your PAYE code to increase tax deducted or collect underpayments, which affects your overall liability, but it doesn't replace those instalments. I once had a client suggest to use PAYE to smooth things—HMRC pro-forma advised against it, and we set up a Budget Payment Plan instead to manage cashflow.
Q9: How should someone dealing with late or missing payments on account proceed?
A9: If you find a payment hasn't cleared or was short, log in and check your Self Assessment statement right away. If it’s late, interest applies from the due date. I’ve guided clients to nip this in the bud by topping up the payment immediately—even by bank transfer—to minimise interest. Then keep a close eye on that statement to verify it reflects the correction.
Q10: Do rental property profits always trigger payments on account, even if rental income seems small?
A10: Rental profits under the £1,000 property allowance may not—but once you exceed £1,000 of net profit, it counts towards your Self Assessment total. That figure could push your liability above £1,000, triggering payments on account. I remember one landlord who earned just enough on two small Airbnb rooms—didn’t expect a tax bill. Boom—instalments dropped. Always tally rental profits, not just income, before guessing.
Q11: For people starting a new self-employed venture mid-year, do payments on account apply the first year?
A11: No—they won’t in year one if your tax bill is under £1,000 or PAYE covers 80%, but you still pay the full bill plus a payment on account in January. I’ve had new startup clients caught off-guard, expecting just one bill—on January, it’s double. Budget early and expect that potential dual hit at the start of year two if profits climb.
Q12: Can someone in Wales be treated differently under payments on account?
A12: Not really. Wales shares the same rates as England and Northern Ireland, so payments on account work the same. I’ve found some Welsh business owners overthink it—expecting devolved variance. That doesn’t apply here. Your calculation follows the standard UK Self Assessment rules.
Q13: Does emergency tax ever affect payments on account?
A13: If you’ve been on emergency tax (like after changing jobs and not updating the code), your PAYE deduction may be way off—leading to an unexpectedly high Self Assessment bill. That more often than not pushes you into payments on account. In my years advising clients in Manchester, I’ve patched this by adjusting PAYE codes mid-year and using SA303 to reduce instalments accordingly.
Q14: Are Class 4 NICs included in payments on account calculations for self-employed people?
A14: Yes—both Income Tax and Class 4 NICs are included when calculating payments on account. If you’re self-employed and nearing the higher-profit threshold, don’t just think about your tax—you’re effectively prepaying NICs too. I’ve seen sole traders ignore NICs and then be knocked sideways by the combined instalments—so always check your SA302 breakdown.
Q15: What if someone under-pays their payment on account—not reduces, but forgets?
A15: Then HMRC charges interest from the due date, even if you file your return early. I always stress to clients: a partial payment helps, but never leaves a gap. It’s better to overpay slightly than face 8%+ interest on the shortfall. And if you spot it late, pay ASAP—even if it’s a few days late, it can save pounds, not pounds.
Q16: If someone has sold assets and owes CGT, do they get payments on account for that?
A16: Interesting one—no, payments on account do not include Capital Gains Tax. That amount is payable with your balancing payment. I once advised a landlord who sold a property—he expected two extra instalments. Instead, he paid CGT in January alongside income tax instalments. Good saving to know.
Q17: Can someone use a payment plan with HMRC if payments on account are too large?
A17: Absolutely. If the sums feel overwhelming, you can arrange a Time to Pay plan—allowing you to split payments monthly beyond Jan/Jul deadlines. I’ve set these up for busy business owners in Leeds, and it prevents panic and penalties. HMRC is surprisingly flexible if you reach out before deadlines.
Q18: How does working from home post-2025 affect payments on account?
A18: Claiming home office expenses reduces your taxable profit, which can lower your payment on account. Since remote allowances tightened post-2025, many miss these deductions. In my recent work with remote consultants, I’ve used simplified expense flat-rate claims to drop their instalments noticeably—especially helpful when business perks slimmed down.
Q19: If someone's side hustles are irregular, can they estimate payments on account differently?
A19: You can—but you must base it on your best estimate of full-year profit. I once worked with a photographer whose income was seasonal—double in summer, sparse in winter. We forecasted actual annual income, reduced payments via SA303, and then recalculated mid-year to refine. It’s more work, but beats flying blind and overpaying.
Q20: Does inheriting an estate or payment affect payments on account?
A20: Inheritance income itself doesn’t go into payments on account unless it's taxed via Self Assessment (rare). But if you receive interest or dividends from an estate that push your total Self Assessment liability over £1,000, that additional income can trigger payments. I guided a client in Edinburgh who got legacy dividends—modest, but just enough to nudge them into two instalments they hadn’t budgeted for.
About the Author:
Adil Akhtar, ACMA, CGMA, serves as CEO and Chief Accountant at Pro Tax Accountant, bringing over 18 years of expertise in tackling intricate tax issues. As a respected tax blog writer, Adil has spent more than three years delivering clear, practical advice to UK taxpayers. He also leads Advantax Accountants, combining technical expertise with a passion for simplifying complex financial concepts, establishing himself as a trusted voice in tax education.
Email: adilacma@icloud.com
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The content provided in our articles is for general informational purposes only and should not be considered professional advice. Pro Tax Accountant strives to ensure the accuracy and timeliness of the information but makes no guarantees, express or implied, regarding its completeness, reliability, suitability, or availability. Any reliance on this information is at your own risk. Note that some data presented in charts or graphs may not be 100% accurate.
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