Day 15: Understanding Payments on Account - Critical Tax Deadline Information

With just 15 days remaining until the self-assessment deadline, it's essential to understand Payments on Account and how they might affect your upcoming tax obligations. This system, designed by HMRC to help spread tax payments, can significantly impact your cash flow planning.

What is Payment on Account?

If your self-assessment tax bill exceeds £1,000, HMRC requires you to make payments towards your next tax bill in advance. These payments are made in two installments, helping to spread the cost of your upcoming tax bill across the year.

Payment Structure and Deadlines

The payment structure consists of three key dates:

• First Payment on Account: Due 31 January 2025 (alongside any tax due for 2023/24)
• Second Payment on Account: Due 31 July 2025
• Balancing Payment: Due 31 January 2026 (if additional tax is owed)

How Payments are Calculated

Each Payment on Account is calculated as 50% of your previous year's tax bill. For example, if your 2023/24 tax bill was £2,400, you would need to pay:

• £1,200 by 31 January 2025
• £1,200 by 31 July 2025

Important Exceptions

You won't need to make Payments on Account if:

• Your last tax bill was less than £1,000
• More than 80% of your tax is collected through PAYE

Managing Your Cash Flow

With the January deadline approaching, consider these strategies to manage your tax payments:

• Set aside funds throughout the year for upcoming payments
• Keep accurate records to project future tax liabilities
• Consider setting up a dedicated tax savings account

Reducing Your Payments on Account

If you expect your income to be lower in the current tax year, you can apply to reduce your Payments on Account. However, be cautious - if you reduce them too much, you may face interest charges on any underpayment.

What You Need to Do Now

With just over two weeks until the deadline, take these immediate actions:

• Check if you need to make Payments on Account
• Calculate your upcoming payment amounts
• Ensure funds are available for the January payment
• Consider if you need to adjust your Payments on Account

Need Urgent Help?

Understanding Payments on Account can be complex, especially as the deadline approaches. Our team at MCC Partners can help you calculate your payments correctly and plan for future tax obligations. Contact us today at 01474 619 990 or email This email address is being protected from spambots. You need JavaScript enabled to view it. for immediate assistance with your tax planning.