If you recently submitted your Self Assessment tax return, you might have been surprised to see a higher-than-expected tax bill. For many sole traders and small business owners across Kent, the confusion starts once the return is filed and a second charge appears.
The cause? Payments on account.
At Brisan Accountancy, we regularly help clients understand and plan for this added cost, especially after the 31st of January deadline. This guide answers the most common questions we receive to help you stay informed and in control of your business finances.
What are payments on account?
Payments on account are advance payments towards your next tax year’s bill. If your tax bill for 2024 to 2025 was over £1,000 and less than 80% of your tax was collected through PAYE, HMRC expects you to make payments in advance for 2025 to 2026.
You will typically pay in two equal instalments:
- 31st of January
- 31st of July
Each instalment is usually 50% of your previous year’s tax bill. So, for example, if your 2024 to 2025 bill was £4,000, HMRC will expect:
- £2,000 by 31st of January 2026 (on top of your 2024 to 2025 bill)
- £2,000 by 31st of July 2026
This is one of the main reasons January tax payments often feel larger than expected.
Who is affected by payments on account?
Payments on account apply to:
- Self-employed individuals
- Sole traders
- Anyone with untaxed income above £1,000
If you are a limited company director and take most of your income through PAYE or dividends, you might not be affected. However, if you receive additional income not taxed at source, payments on account can still apply.
What if your income will be lower next year?
If you expect your income to drop significantly in 2025 to 2026, you can ask HMRC to reduce your payments on account. However, this must be approached carefully. If you underestimate your income and underpay, HMRC will charge interest on the shortfall and may apply penalties.
We recommend checking your cash flow projections or speaking with your accountant before submitting a claim to reduce payments.
Need help planning your tax liability? Visit our Self-Assessment Services page.
What happens if I do not pay?
Missing the payments on account deadlines can lead to:
- Immediate interest charges
- Additional penalties if not paid within 30 days
- Further enforcement action from HMRC if left unresolved
If you are struggling to pay, HMRC offers Time to Pay arrangements, which allow you to spread the cost. However, you must act early. Leaving it too late limits your options.
If you are unsure whether you have a Time to Pay option available, get in touch or read about our VAT and Tax Support.
How can I prepare for the July payment?
To avoid a repeat of January’s surprise:
- Check your tax return to confirm if a payment on account was added
- Update your cash flow forecast to factor in the July deadline
- Speak to your accountant early if you think the estimate is too high
Staying ahead of this now can save you from panic in mid-summer. We help clients across Kent forecast for these kinds of deadlines as part of our regular bookkeeping support.
Final thoughts: No surprises next time
At Brisan, we believe your accountant should never leave you surprised by your tax bill. We talk clients through the impact of payments on account well before the return is submitted, so there is always time to plan.
If your return was filed without a conversation about these additional payments, now is a good time to ask better questions and get the right support.
Have a question about your next tax payment or planning for July? Contact us here for clear answers and a plan that works for you.
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