Payment on Account Basics for Creatives in the UK

Mar 25

4 min read

If you're a singer, artist, influencer, or performer earning money through self-employment, you may have heard of Payments on Account—or worse, received a surprise bill from HMRC that you weren’t expecting.

Many creatives don’t realise they need to make advance tax payments until it’s too late, leading to cash flow issues and unnecessary stress. The good news? Once you understand how it works, you can plan ahead, avoid surprises, and stay in control of your tax payments.

This guide explains what Payments on Account are, who needs to pay them, and how to prepare for them properly.

1. What Are Payments on Account?

Payments on Account are advance tax payments made twice a year toward your next year’s Income Tax and National Insurance bill.

Instead of paying your entire tax bill in one go, HMRC asks you to split the payment into two instalments, based on your previous year's tax bill.

Why does HMRC do this? Because self-employed people don’t have tax deducted automatically, HMRC wants to ensure they’re collecting tax throughout the year, rather than waiting until the next tax deadline.

2. Who Needs to Make Payments on Account?

You need to make Payments on Account if:

Your last Self-Assessment tax bill was over £1,000.
You don’t already pay tax at source (e.g., via PAYE).

You don’t need to make them if:

Your tax bill is under £1,000.
More than 80% of your tax is already deducted at source (e.g., you have a PAYE job).

3. How Are Payments on Account Calculated?

Payments on Account are based on your last tax bill. HMRC assumes you’ll earn the same amount this year and asks you to pay 50% of last year’s tax bill in advance, in two instalments.

Example:

You submit your Self-Assessment for 2023/24 and owe £3,000 in tax.
HMRC assumes your 2024/25 tax bill will be the same.
They ask you to pay 50% of this (£1,500) in January 2025 and another 50% (£1,500) in July 2025.

So, instead of just paying your £3,000 tax bill in January, you’ll also have to pay £1,500 in advance for the next year—a total of £4,500 in one go.

This catches many self-employed people off guard, so it’s important to plan for it.

4. When Are Payments on Account Due?

Payments on Account are made in two instalments:

31st January – First payment (50% of last year’s tax bill).
31st July – Second payment (another 50%).

If your actual tax bill is lower than expected, you may get a refund. If it’s higher, you’ll need to pay a “balancing payment” in January.

5. How to Reduce Payments on Account

If you think your income this year will be lower than last year, you can ask HMRC to reduce your Payments on Account.

How to do it:

Log in to your HMRC Self-Assessment account.
Select “Reduce Payments on Account” and enter a lower estimate.
HMRC will recalculate your advance payments.

Warning: If you reduce your payments too much and end up owing more, HMRC will charge you interest on the shortfall.

If you’re unsure, it’s best to speak to an accountant before making changes.

6. How to Prepare for Payments on Account

To avoid last-minute panic, start planning as soon as you start earning.

Set aside tax money early – Aim to save 20-30% of your income for tax and Payments on Account.
Use a separate savings account – Keeping tax money separate helps avoid accidental spending.
Use accounting software – Tools like FreeAgent, QuickBooks, and Xero can estimate your tax bill so you’re never caught off guard.
Check your payment deadlines – Put reminders in your calendar so you never miss a deadline.

If you can’t afford a Payment on Account, contact HMRC immediately—they may let you set up a payment plan instead of charging penalties.

7. Common Mistakes to Avoid

Forgetting about Payments on Account – Many people get a shock when they see a bigger bill than expected.
Not setting money aside – Avoid spending all your earnings without planning for tax.
Ignoring payment deadlines – HMRC charges interest and penalties if you miss a payment.
Reducing payments too much – If your tax bill ends up being higher, HMRC will charge interest.

Final Thoughts: Stay Ahead of Your Tax Bill

Payments on Account can be frustrating, but understanding how they work will help you stay in control of your finances.

If your last tax bill was over £1,000, expect to make advance payments.
Plan for two tax deadlines: 31st January and 31st July.
Set aside tax money regularly so you’re not caught short.
Use accounting software or an accountant to track your tax liability.

By staying organised, you can avoid unexpected tax bills and focus on your creative career without financial stress.

If you're ever in need of help with setting up a limited company, sorting out your bookkeeping, accounting and tax submissions or would like some personal financial coaching, drop us a line by clicking on the 'Contact Us' button at the top of the page and we'll be happy to help.

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