Payments on account, explained

Making Tax Digital changes how you report your income, not how you pay your tax. Payments on account are advance instalments towards next year’s tax bill, and they catch people out because the first one lands in the same January as your final declaration.

What are payments on account?

If your last Self Assessment bill was more than £1,000, and less than 80% of your tax was already collected at source (through PAYE, for example), HMRC asks you to pay towards next year in two instalments: one by 31 January, one by 31 July. Each is usually half of last year’s tax bill. A balancing payment the following January then squares up the difference once your actual figures are known.

Why the July date catches people out

The 31 July instalment is the one with no other paperwork attached, so it is the easiest to forget. Nothing is due to file in July: it is purely a payment. Your Quarter 1 update follows a week later, on 7 August, so the two sit close together without being connected. The deadlines page can remind you before the July instalment, before the January one, and before each quarterly update.

How this fits Making Tax Digital

Your quarterly updates and your final declaration decide the figures. Payments on account are simply how the resulting tax is scheduled across the year. They are not a new MTD invention: they have always been part of Self Assessment, and MTD does not change them. Setting money aside as you go is what keeps either instalment from being a surprise.