Payments on account often come as a shock to self-employed people! Here is an explanation of what and why they need to be paid.

HMRC ask self-employed people to make payments on account twice a year. These payments are designed to help to spread the cost of the upcoming year’s tax. Payments on account are calculated using the previous year’s tax bill. HMRC are predicting your profit to be similar to the previous year’s profit.

Your payments on account are due in two instalments – the deadlines are 31 January and 31 July. As mentioned above, HMRC asks for these payments in order to help self-employed people stay on top of the tax they owe. Another reason is because self-employed people pay their taxes once a year, due by the 31st January after the April 5th year end – giving them 9 months grace so to speak.