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Payments on Account Explained

Payments on account are advance payments towards your next year's tax bill. They catch almost every new self-employed beauty worker off guard, because in your first year of filing you can end up paying roughly 150% of what you expected. This guide explains what they are, when they're due, how to reduce them if your income drops, and how to plan your cash flow so January doesn't wipe you out.

Quick rule of thumb: in your first year of Self-Assessment, budget for 150% of your expected tax bill - you'll pay the current year's tax plus half of next year's in advance.

What are payments on account?

Payments on account are HMRC's way of spreading your tax bill across the year instead of collecting it all in one lump sum in January. They're advance payments towards your NEXT year's tax bill, based on what you owed THIS year.

Each payment on account is 50% of your previous year's tax bill.

You make two payments on account each year:

• First payment: 31 January (at the same time as you pay your current year's tax)
• Second payment: 31 July

Then, when your actual tax bill for the year is calculated, HMRC works out whether you've overpaid or underpaid. Any remaining balance (called a balancing payment) is due the following 31 January.

How it works: a real example

Let's say you're a beauty therapist. You file your first Self-Assessment for the 2025/26 tax year, and your tax bill (Income Tax + National Insurance) comes to £3,000.

What you pay on 31 January 2027:

What you pay on 31 July 2027:

What happens in January 2028:

Your actual 2026/27 tax bill is calculated. Let's say it's £3,200.

You've already paid £3,000 in payments on account (£1,500 + £1,500). So you owe a balancing payment of £200.

Plus, your payments on account for 2027/28 are now based on £3,200:

• First payment on account: £1,600 (50% of £3,200)

And so on, every year.

The first-year shock

This is where it hurts. In your first year of Self-Assessment, you've never paid tax before through this system. So on 31 January, you pay:

1. Your full tax bill for the year just ended
2. Plus 50% of that bill as your first payment on account

Example: Your first tax bill is £2,000. On 31 January, you pay £2,000 + £1,000 = £3,000. Then on 31 July, you pay another £1,000.

Total tax payments in your first filing year: £4,000 - double your actual tax bill.

You haven't been overtaxed - you're just paying the current year plus an advance on next year. But if you haven't planned for it, finding £3,000 in January when you expected £2,000 is a nasty surprise.

This is the number one reason beauty workers get into tax trouble. They budget for their tax bill but forget about payments on account.

Tip for new starters: In your first year of filing, your January bill will include your full tax bill plus 50% again as an advance payment. If you expect to owe around £2,000, budget for at least £3,000 in January. Put 30% of your weekly profit into a separate savings account from your very first week of trading - it is much easier to save as you go than to find thousands in one go.

When payments on account don't apply

You don't have to make payments on account if:

• Your tax bill (before any payments on account are deducted) is less than £1,000, OR
• More than 80% of your tax has already been collected at source (e.g., through PAYE if you're employed and self-employed)

If you're a sole trader beauty worker with no other income, and your tax bill is over £1,000, you'll almost certainly have payments on account.

How to reduce your payments on account

If you expect your income to be lower next year than it was this year, you can ask HMRC to reduce your payments on account. This is common for beauty workers who:

• Had an unusually good year (a big wedding season, for example) and don't expect to repeat it
• Are going on maternity leave
• Are reducing their hours
• Are moving to a cheaper chair rent and expect lower turnover
• Have higher expenses coming up (new equipment, training)

How to reduce them

You can reduce your payments on account by:

1. Online: Log into your HMRC online account, go to Self-Assessment, and submit a claim to reduce payments on account (form SA303 - it's built into the online system)
2. By post: Download form SA303 from gov.uk and send it to HMRC
3. Through your accountant: They can submit the reduction on your behalf

Be careful: If you reduce your payments on account and your actual tax bill turns out to be higher than the reduced amount, HMRC will charge you interest on the underpayment. Only reduce them if you're genuinely confident your income will be lower.

What happens if your income goes UP?

If your income increases, your payments on account (based on last year's lower bill) won't cover your actual tax bill. The difference becomes a balancing payment due the following January.

Example:

• 2025/26 tax bill: £2,000
• Payments on account for 2026/27: £1,000 + £1,000 = £2,000
• Actual 2026/27 tax bill: £3,500
• Balancing payment due January 2028: £1,500
• Plus first payment on account for 2027/28: £1,750 (50% of £3,500)
• Total due January 2028: £3,250

Growing income is a good problem to have, but it means your January bill keeps growing too. Plan ahead.

Cash flow planning for beauty workers

Beauty income is often seasonal. You're likely busier before Christmas, quieter in January, busier around prom season and weddings in summer. Your tax payments don't follow this pattern - they're fixed in January and July regardless of how busy you are.

Strategy 1: Save a fixed percentage every week

The simplest approach. Put 25-30% of your weekly profit into a separate savings pot or account. Don't touch it. When the tax bill arrives, the money is there.

This more than covers most beauty workers' tax bills (including payments on account) and leaves a buffer.

Strategy 2: HMRC Budget Payment Plan

HMRC lets you set up a Budget Payment Plan where you pay a fixed amount towards your tax bill every week or month, by direct debit. This spreads the cost evenly throughout the year.

You set it up through your HMRC online account. You choose the amount. HMRC adjusts when your actual bill is calculated.

This is a genuinely useful option that most beauty workers don't know about. It turns a big lump-sum payment into manageable monthly amounts.

Tip for new starters: HMRC's Budget Payment Plan is completely free to set up through your online account. You choose how much to pay each month, and it goes straight towards your next tax bill. Think of it like a direct debit for your tax - it takes the stress out of January and July.

Strategy 3: Set up a standing order

Set up a standing order from your business account to a savings account on the same day each week or month. Treat it like rent - it goes out automatically and you don't think about it.

The payment calendar

Here's what a typical year looks like for a self-employed beauty worker who's been filing for a couple of years:

Mark both dates in your calendar now. Set reminders for 2 weeks before each one.

What happens if you can't pay?

If you can't pay your tax bill on time, don't ignore it. Contact HMRC before the deadline:

• HMRC Self-Assessment Payment Helpline: 0300 200 3822
• Time to Pay: HMRC can set up a payment plan (usually 6-12 months) if you contact them proactively. The earlier you call, the more flexible they tend to be.
• Interest: HMRC charges interest on late payments (currently around 7.25%), so it's always better to pay on time if you can.
• Penalties: Late payment penalties start at 5% of the unpaid amount if you're 30 days late, with further penalties at 6 months and 12 months.

Calling HMRC before the deadline and setting up a payment plan is always better than hiding and hoping they'll forget. They won't forget.

Common questions

"I'm employed AND self-employed - do I still pay on account?" It depends. If more than 80% of your total tax is collected through PAYE (from your employment), you won't have payments on account. If your self-employed tax is more than 20% of your total tax bill and that portion is over £1,000, you will.

"My income dropped this year - can I get a refund on my payments on account?" Yes. If your payments on account are more than your actual tax bill, HMRC will refund the difference (or offset it against future payments). This happens automatically when you file your return.

"I've just started - when will my first payments on account be due?" When you file your first Self-Assessment. If you start self-employment in 2025/26, you file your first return by 31 January 2027. Your first payment on account will be due on that same date.

"Can I pay my payments on account early?" Yes. You can pay at any time. Some people prefer to pay as soon as they file their return rather than waiting until the deadline.

What to do next

1. Find out your current tax bill - check your HMRC online account or your last Self-Assessment
2. Calculate your payments on account - they're 50% of your bill, due in January and July
3. Set up a savings plan - put 25-30% of your profit aside every week
4. Consider HMRC's Budget Payment Plan - set up regular payments through your HMRC account
5. Mark 31 January and 31 July in your calendar with reminders 2 weeks before

Who to Contact

• HMRC Self-Assessment helpline - 0300 200 3310 (Free)
• HMRC Payment Support - for payment plans if you are struggling - 0300 200 3835 (Free)
• HMRC online - check your tax bill, set up budget payments - gov.uk/self-assessment-tax-returns (Free)
• TaxAid - free tax advice for people on low incomes - taxaid.org.uk (Free)
• Citizens Advice - general guidance on tax and self-employment - 0800 144 8848 (Free)
• MoneyHelper - free financial guidance from the government - 0800 138 7777 (Free)
• An accountant - for cash flow planning and reducing payments on account (Paid)

Sources

• Income Tax (Trading and Other Income) Act 2005
• Taxes Management Act 1970, Sections 59A and 59B (payments on account)
• HMRC guidance: Understand your Self-Assessment tax bill, gov.uk/understand-self-assessment-bill
• HMRC guidance: Pay your Self-Assessment tax bill, gov.uk/pay-self-assessment-tax-bill

Related Guides

• Self-Assessment for Beauty Therapists
• Self-Assessment for Hairdressers
• Tax-Saving Strategies
• Setting Up Record-Keeping
• National Insurance: Self-Employed

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