Payments on account

Payments on account are HMRC's way of collecting tax from self-employed people in advance. If your Self Assessment bill is £1,000 or more (and less than 80% of your tax is collected at source), you make two payments on account each year.

Each payment is half of last year's bill. They're due 31 January and 31 July. They count toward next year's Self Assessment — but you need the cash ready when they're due.

First-year self-employed people get a nasty surprise: in January after their first tax year, they pay last year's bill plus the first payment on account, all at once. That can be 150% of a year's tax in one hit.

Related terms

• Class 4 National Insurance — NI for sole traders — 6% main rate on profits between £12,570 and £50,270, 2% above.
• Self Assessment — HMRC's system for declaring income not taxed at source — filed annually by the self-employed, landlords, and many directors.