Payments on Account to HMRC: What Are They, and Why Do I Have to Pay Them?

If you've ever received a surprise bill from HMRC in late January that was twice what you were expecting, you may have met the infamous Payment on Account.

Cue panic. Cue confusion. Cue a flurry of Googling.

Don’t worry—you’re not alone. Payments on Account catch a lot of people out, especially if you’re new to self-employment, property income, or the world of Self Assessment in general. In this blog, we’re going to explain what they are, why they exist, who they apply to, when you need to pay them, and how the system works (spoiler: it’s a bit weird at first, but it does make sense once you get your head around it). Let’s unpack it.

So, What Is a Payment on Account to HMRC?

In simple terms, Payments on Account (POA) are advance payments towards your next year’s tax bill. HMRC doesn’t want to wait until next January to get your tax from you—they want a slice of it up front, based on what you owed this year. It’s their way of smoothing out your payments and making sure they don’t have to wait too long for the next instalment. You usually make two payments each year, each worth 50% of your last tax bill.

Who Has to Make Payments on Account?

HMRC applies POA to most individuals who file a Self Assessment return and owe more than £1,000 in tax after PAYE and other tax deductions.

This includes:

• Self-employed people

• Landlords with rental income

• Company directors with untaxed income

• High earners who don’t have enough tax collected through PAYE

• Anyone else who earns outside of a PAYE system and has tax to settle through Self Assessment

  
  

Exceptions: You won’t have to make Payments on Account if:

• Your total tax bill (excluding student loan and capital gains) is £1,000 or less, or

• 80% or more of your tax has already been collected through PAYE.

  
  

When Do I Have to Pay?

There are two key dates to remember:

• 31st January – the first payment on account is due (this is also when you pay any balancing payment for the previous tax year).

• 31st July – the second payment on account is due.

  
  

So if your 2023/24 tax return says you owe £4,000, then HMRC will ask for:

• £4,000 in January 2025 (for the previous year’s tax),

• Plus £2,000 (first POA for 2024/25),

• Then another £2,000 in July 2025 (second POA for 2024/25).

Total cash out in January? £6,000. Ouch. This is exactly why so many people get caught out—they’re only budgeting for what they owe now, not what HMRC wants next.

How Does HMRC Work It All Out?

Payments on Account are calculated based on your most recently submitted Self Assessment return. They take the total tax liability and split it into two equal chunks.

If your income stays broadly the same from one year to the next, this works fairly well. But if your income drops in the following year, you could end up overpaying. Don’t worry, though—HMRC will refund any overpayment once you file your next tax return.

What If I Can’t Afford It?

It’s a common issue. That January bill often comes right after Christmas and can be a big ask for small businesses or freelancers who’ve had a quiet winter.

Here’s what you can do:

• Apply to reduce your Payments on Account if you expect your income to go down next year. This can be done through your tax return or online through your HMRC account.

• Set up a payment plan with HMRC if you’re struggling to pay on time. You can usually do this automatically online for debts under £30,000.

Be careful though: underestimating your next year’s tax just to lower your POA can backfire. If HMRC finds out you should have paid more, you’ll have to cough up the difference—possibly with interest.

Can I Just Pay It All Later Instead?

Not really. HMRC expects those payments unless you officially reduce them. Ignoring them or choosing to “deal with it later” could lead to interest charges and penalties, so it's not a good idea.

That said, if you really don’t need to make POAs because your income has dropped or you’re now being taxed through PAYE, then you should reduce or remove them officially, ideally before the payment deadline.

What Happens When I File My Next Tax Return?

Let’s say you made Payments on Account totalling £4,000 across January and July. When you file your next tax return, HMRC will compare what you actually owed with what you’ve already paid in advance.

There are three possible outcomes:

1. You overpaid – HMRC owes you money and will either refund you or put it towards future liabilities.

2. You underpaid – You’ll need to make a “balancing payment” by the next January deadline.

3. You were spot on – Nothing extra to pay, and your Payments on Account did the job.

   
   

Why Do They Do It This Way?

It might feel confusing and even a bit unfair, but the idea is to stop taxpayers from falling too far behind. By asking for advance payments, HMRC gets money in sooner, and you (in theory) avoid a massive single bill next year.

The reality, though, is that this system only works well when you understand it—and plan ahead. It’s not always intuitive, and the first time you get hit with a double-whammy January payment, it can feel like a nasty shock.

Final Thoughts

Payments on Account are one of those quirks of the Self Assessment system that can catch you off guard if you’re not prepared. They’re not a penalty, and they’re not extra tax—they’re simply a way of spreading your tax bill across the year.

The key is understanding how they work, knowing when to expect them, and keeping track of what you’re likely to owe. That way, there are no nasty surprises come January (well, other than the weather).

If you’re not sure whether you’ll need to make Payments on Account this year—or you’ve had one appear and don’t know why—take a deep breath, get your numbers together, and give HMRC’s guidance a quick read. It’s not the easiest thing to get your head around, but once you do, it all starts to click into place.