Payments on Account: What They Are and Why UK Creatives Need to Know

If you’ve ever filed a Self Assessment tax return and been caught off guard by a second, unexpected tax bill in January, you’re not alone. For many UK creatives — from actors and artists to musicians and crew — Payments on Account are one of those confusing tax quirks that can cause a serious headache if you’re not prepared.

So what are they, why do they exist, and how can you avoid being stung by surprise costs? Let’s break it all down, simply and clearly — no jargon, just what you need to know.

What exactly are Payments on Account?

Put simply, Payments on Account are advance tax payments towards your next year’s tax bill.

If you’re self-employed or a sole trader, HMRC wants to avoid you building up a big tax bill each January. So instead, they ask you to pay some of next year’s tax upfront — in two chunks: one in January and one in July.

This means that when you file your tax return for, say, 202/24 and owe £3,000 in tax, HMRC assumes your next year’s bill (2024/25) will be similar. So they ask you to make advance payments totalling £3,000 — on top of what you already owe. Ouch, right?

Who has to make Payments on Account?

You’ll need to make Payments on Account if:

• You’re self-employed or have untaxed income (like freelance earnings or rental income)

• Your last tax bill was over £1,000

• Less than 80% of your income is taxed at source (e.g. through PAYE)

This catches a lot of creatives off guard — especially if you’ve had a good year financially and cross that £1,000 threshold for the first time.

If you’re just starting out and your income’s still low, you might escape it for now. But once your tax bill grows, Payments on Account become part of the deal.

How are they worked out?

Each Payment on Account is half of your previous year’s tax bill (excluding student loan repayments or capital gains). So, if your 2023/24 tax bill comes to £2,400, HMRC will assume your 2024/25 bill will be the same — and they’ll expect:

• £1,200 by 31 January 2025

• £1,200 by 31 July 2025

That’s £2,400 paid in advance for the following year. And here’s the kicker: you still have to pay your actual 2023/24 tax bill at the same time as the first instalment. That means double the amount due in January.

Example:

Let’s say your total tax bill for 2023/24 is £2,400:

• You’ll pay £2,400 (for 2023/24) plus £1,200 (1st Payment on Account for 2024/25) by 31 Jan 2025

• Then another £1,200 by 31 July 2025

It can feel like a sting — especially if you weren’t expecting it. That’s why it’s so important to plan ahead.

What are ‘balancing payments’?

Let’s say HMRC guessed low and your actual 2024/25 bill turns out to be £3,000. You’ve already paid £2,400 through Payments on Account, so you’ll owe a balancing payment of £600 in January 2026.

If they guessed too high? You’ll get a refund or credit towards future tax. Either way, everything gets squared up when you file your return — but the key is to avoid nasty surprises by knowing this system exists.

How do I pay my Payments on Account?

You pay them in the same way as your main Self Assessment tax bill — via your HMRC online account, bank transfer, or direct debit. Just make sure you reference the correct payment period (HMRC will specify this in your online account or tax statement).

If you're a Creative & Numbers client, we’ll send reminders and help ensure everything’s submitted and paid on time — without you having to chase the paperwork.

Can I reduce them?

Yes — but only if your next year’s income will be lower and you have a valid reason.

You can ask HMRC to reduce your Payments on Account using:

• Your HMRC online account

• A paper form (SA303)

• Or we can handle it for you if we manage your taxes

Warning: If you reduce them too much and your actual bill ends up being higher, HMRC will charge you interest on the shortfall. So don’t guess — check with an accountant first.

What if I can’t afford to pay?

If January rolls around and the total bill is more than you can manage, don’t bury your head in the sand. HMRC does allow for Time to Pay arrangements, where you can spread the cost across manageable monthly instalments.

At Creative & Numbers, we often support clients in setting these up. The key is to act early — interest is charged on late payments, but penalties only apply if you ignore it altogether.

Why does this matter for creatives?

Many creatives experience income that’s seasonal, project-based, or just plain unpredictable. Payments on Account assume stability — which often isn’t the case in this industry.

That’s why understanding them (and budgeting for them) is so important. With the right planning, they don’t have to be a problem — but without a heads-up, they can easily throw off your finances.

Working with accountants who understand the ups and downs of creative life can make a huge difference. We know January is already a lean month for many freelancers — and we’ll help you plan so tax doesn’t make it worse.

Stay on top of your tax — without losing your creative flow

Payments on Account might feel unfair, especially when you’re asked to pay tax for work you haven’t even done yet. But with clear advice and proactive support, they don’t have to derail your finances.

At Creative & Numbers, we specialise in accounting for UK creatives — helping you keep tax bills predictable, manageable, and stress-free.

Got a question about your tax bill or Payments on Account?

Let’s chat — we’re here to help.