2 min read
Definition
A payment on account is an advance instalment towards a future tax bill. In Self Assessment, taxpayers over a threshold pay two payments on account towards next year's tax, in January and July.
In plain terms
HMRC asks you to pay part of next year's tax in advance, based on this year's bill. It catches people out in their first year, when the January payment can include both the balance and the first payment on account.
Why it matters for your company
Payments on account can double a first tax bill unexpectedly, so budget for them. If income falls, you can apply to reduce them. Understanding the timing helps directors plan personal cash around their dividend income.
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