We provide accounting services to hundreds of small businesses, sole traders and freelancers across the UK and one of the topics we have to explain the most is how Payments on Account work for the Self Employed.

If the tax payable on your tax return exceeds £1,000 and more than 90% of your total tax is collected via self-assessment you will be expected to start paying payments on account.

This normally is calculated using the current years tax calculation but you can apply to reduce the payments on account if for example your profits are expected to be lower in the next year. Bear in mind if it turns out you are wrong and you should have actually made higher payments on account then you may be liable to interest and penalties.

50% of the payments on account are due at the same time as paying your previous years tax, so by 31 January, with the other 50% the following 31 July.

Payments on account do include Class 4 NI but do not include Student Loan repayments so remember to bear this in mind when you are putting money aside.

The below timeline should help explain what needs paying and when.

Payments on Account – Self-Employed