What is HMRC’s Payment on Account System for Self-Assessment and how does it affect me?

Paula Veysey-Smith • 9 July 2025

With many tax payers facing yet another payment to the HMRC on the 31st July let’s answer some frequently asked questions about the Payments on Account System.

When was this system first introduced?

The Payments on Account system was introduced in the 1996–97 tax year, as part of the Self-Assessment overhaul. Before then, HMRC had a fragmented and less predictable system for collecting income tax from self-employed individuals and others outside the PAYE system. It was introduced to ensure that taxpayers pay tax closer to when they earn their income, rather than facing a large lump sum payment long after the end of the tax year.

Why did HMRC introduce Payments on Account?

There are three key reasons why HMRC introduced this system:

Cash flow for HMRC: This undoubtably is a driving reason for Payments on Account as it spreads the inflow of tax revenue more evenly throughout the year rather than relying on one big payment annually after a tax demand was sent to the tax payer.
Encourages prompt payment: Tax is collected in advance (based on the prior year’s bill), reducing the risk of default or late payments.
Helps tax-payers budget: Although first going into the Payment on Account system is painful as your tax bill, and half of it again, need to be paid on 31st January. Once in though, it does avoid the shock of a large single tax bill by splitting the liability into two smaller payments.

So how does the Payments on Account system work?

Who Needs to Make Payments on Account?

You’ll need to make payments on account if your tax bill is more than £1,000 and less than 80% of your tax is collected at source (e.g., via PAYE).

When Are Payments on Account Due?

There are two payments each year:

31 January – First payment on account for the current tax year
31 July – Second payment on account for the current tax year

Each is 50% of your previous year’s tax bill (excluding Class 2 NICs and student loan repayments).

Example:

Let’s say your tax bill for the 2023/24 tax year is £6,000.

On 31 January 2025:
You pay the £6,000 balance for 2023/24
Plus a £3,000 payment on account for 2024/25 (50% of £6,000)
On 31 July 2025:
You pay another £3,000 as the second payment on account for 2024/25

So by July 2025, you've prepaid £6,000 towards your 2024/25 tax bill.

What Happens When You File Your Next Tax Return?

When you submit your 2024/25 return:

If the actual tax bill is £7,000, you’ve already paid £6,000, so you owe £1,000 by 31 January 2026.
If it’s only £5,000, you’ve overpaid and can get a £1,000 refund or offset it against future payments.
If the bill is £7,000 your tax payment will be:
on 31st January 26 £1,000 balance on the 2024/25 return bill AND half of the £7,000 (£3 500) balancing payment so £4,500 in total.
£3,500 balancing payment on the 31st July 26.

Can You Reduce Payments on Account?

Yes you can.

If you expect your income to fall, you can apply to reduce them through your HMRC online account or on the paper form SA303. But if you reduce them too much, HMRC may charge interest on the underpaid amount.

Will Making Tax Digital for Self-assessment change the Payments on Account System?

The short answer is No! The longer answer is watch this space!! Many of us professionals believe that with quarterly reporting, quarterly paying will soon follow! For more information on Making Tax Digital for Self-assessment please see our article at:

https://www.mpoweraccounting.co.uk/how-will-i-be-affected-by-making-tax-digital-for-income-tax-mtd-for-itsa

The Payment on Account system often causes much confusion with self-assessment tax payers. At MPower Accounting we are used to helping our clients understand when payments need to be made and how they have been calculated. As an added service we will always send a payment reminder to clients early in July so they are not caught out. We are also delighted to work with clients who want to complete their self-assessment tax returns early to determine if they are able to reduce the July Payment on Account.

Do contact us if you’d like help with Payments on Account and anything to do with your self-assessment

M is for Measurable

by Paula Veysey-Smith • 31 May 2026

You've made your goal specific. Now how do you know you're actually getting there? The answer is in the M. "The more you can define your goals, the more likely you are to achieve them." Last time we looked at S for Specific — turning vague wishes like "I want to get fit" into something concrete and actionable. If you missed it, go back and start there, because everything builds on that foundation. Now we move to M for Measurable. And this one is just as important, because a goal without a measure is still just a wish.

S is for Specific

by Paula Veysey-Smith • 3 May 2026

Your New Year’s resolutions haven’t failed, they just need a sharper edge. Here's how one simple shift can change everything. “We make New Year's resolutions — let's call them goals. But they can be a bit vague. The way to make them happen is to actually define them better.” It's that time of year when those bold January intentions have quietly faded into the background. "Get fit." "Lose weight." "Grow my business." Sound familiar? You're not alone — and more importantly, you haven't failed. Your resolutions just need a better framework.

MTD for Income Tax Is Here: What It Means for You

by Paula Veysey-Smith • 13 April 2026

HMRC’s new system Making Tax Digital for Income Tax Self-Assessment has now arrived! This isn’t just a regulatory update. It’s a shift in how your records are kept, how often you report, and what you will need to do throughout the year. What’s changing for you: Under MTD for Income Tax, if you’re a sole trader or landlord within scope: You’ll need to keep digital records Quarterly updates will need to be digitally submitted to HMRC An End of Period Statement (EOPS) will need to filed A Final Declaration will be needed to finalise your tax position for the year In short: instead of one annual deadline, your tax reporting becomes a year-round process. Why using compliant bookkeeping software is now essential? To meet MTD requirements, HMRC requires fully digital record keeping and submissions . Manual spreadsheets alone are no longer sufficient You’ll need to use MTD-compliant bookkeeping software Sending your accountant paper records or incomplete information will cause delays The upside (it’s not just compliance) While MTD is mandatory, it also brings real benefits: Clear visibility of your tax position throughout the year Better cash flow planning Fewer surprises at year-end What support do you need to navigate this new system? The support of qualified accounting professionals is now more necessary than ever. We don’t expect you to navigate this alone and here’s how MPower Accounting can ensure that you not only comply with, but thrive under, this new reporting requirement. We’ll help you choose and set up the right software We work with trusted platforms such as Xero, QuickBooks, FreeAgent and others. We’ll recommend what fits your business best and get everything set up correctly. We’ll ensure you stay compliant Review your records regularly Submit your quarterly updates accurately and on time Handle all year-end submissions We’ll take the stress off your shoulders With the right system in place: Your records stay up to date automatically We can spot issues early You avoid last-minute pressure and surprises All we’ll need from you to make MTD work smoothly, is access to your chosen bookkeeping software, regular uploaded receipts so we can keep records current and a little of your time when there are questions. The more up-to-date your records are, the more value and proactive advice, we can provide. Your role is simple but important. Letting us take the strain of compliance will save you time and cause significantly less stress, enabling you to focus on what is important, that is running your business successfully. Next steps If you haven’t already: Speak to us about getting set up on MTD-compliant software Let us review your current bookkeeping process Make sure you’re ready for quarterly reporting

Why Cheap, Outsourced Bookkeeping Could Cost Your Business More

by Paula Veysey-Smith • 24 March 2026

When choosing an accountant, it’s natural to be drawn to lower fees. However, if your accountant outsources bookkeeping, especially overseas, it can lead to hidden risks, poorer service and long-term costs for your business. Here’s what you need to consider: Service Quality May Be Lower Higher risk of errors, misclassified transactions, and inaccurate reports Bookkeeping completed less regularly, usually only at key deadlines, eg, VAT quarter No dedicated bookkeeper which can be contacted Less Ongoing Support Little to no ongoing support from UK based accountant Less control and oversight from your accountant Slow response to queries and issues taking longer to resolve Cheap Fees Can Lead to Higher Costs You may pay more later to fix errors or redo work Risk of fines or penalties due to late or incorrect filings Your time being wasted with identifying errors and chasing a response Impact on Your Business Inaccurate financial data makes it harder to make confident decisions Delays can affect cash flow planning and reporting deadlines Frustration and lack of trust in your financial information and accountant What to Look For Instead Accountants who have UK based in house bookkeepers Clear communication and quick response times Consistent, reliable handling of your financial records Continued support and advice through the whole year Key Takeaway The cheapest option isn’t always the best value Investing in quality bookkeeping saves time, reduces risk, and gives you peace of mind The MPower team is proudly based in the UK, with every member carefully selected for their expertise and experience. Our role goes beyond simply completing bookkeeping tasks—we provide valuable insights and practical suggestions based on your financial data. We believe in building strong, partner-like relationships with our clients. That means we’re here for you all year round, whether you have a quick query or need deeper insight from your numbers to support better business decisions. We have welcomed many new clients to our portfolio who, initially enticed by the cheaper rate, have become disillusioned and disappointed with their existing out-sourcing accountants. Understanding that cheap is not the best option, they have thrived with the support and availability our team provide. Choosing the right accountant is about more than price, it’s about ensuring your business has accurate, timely financial information you can depend on and the support of an accountant who is readily available, at any time of the year. This is the service that MPower strives to provide, to any and every client!