New to Self Assessment Tax? Here’s an Explainer

If you are new to being self-employed or being a landlord, Self Assessment can feel like one of those jobs you know you should understand better, but never quite get around to.

When do you actually pay the tax? Why does January seem to be so expensive? And what on earth is a “payment on account”?

In this article, we’ll walk you through how Self Assessment tax payments work in practice, the key dates to watch, and how to avoid nasty surprises by planning ahead.

Understanding Self Assessment payments

Once your tax return is completed and filed, HM Revenue & Customs (HMRC) calculate how much tax you owe on all income you have earned outside of PAYE. Unlike tax taken automatically from a salary, you are responsible for paying the tax yourself. That is why knowing the deadlines is crucial.

For most people, there are two main types of payments to make each year:

1.   Payment on account - This is essentially a prepayment for your next year’s tax. When your tax bill for a year is over £1,000, HMRC will require you to make two equal payments on 31 January and 31 July. Think of it like a deposit on your tax bill.

2.   Balancing payment - This is the top-up for anything left over once your tax return is finalised and submitted. It’s due by 31 January following the end of the tax year.

For example, say your tax bill for 2023/24 was £3,000. You will likely have paid £1,500 on 31 January 2025 and another £1,500 on 31 July 2025 as payments on account. Then, if your tax bill for 2024/25 is £3,200, you will pay the £200 balancing payment on 31 January 2026. You will also pay a £1,600 payment on account against the next year’s tax bill on the same date, which means you would pay a total of £1,800 on 31 January 2026.

If you are new to Self Assessment, then you probably will not have made any payments on account for the first tax year that you file a tax return for. So, you will need to pay the full balance for the entire tax year on the 31 January following the tax year end.

In other words, if your tax bill for 2024/25 is £3,200, you’ll need to pay £3,200 on 31 January 2026. You’ll also pay a £1,600 payment on account against the next year’s tax bill on the same date, which means you’d pay a total of £4,800.

No wonder January can feel so expensive!

How to pay

Paying is straightforward once you know the methods.

These days most people pay online through their HMRC account by bank transfer or by debit card. You can also use the HMRC app to pay your bill through your bank’s app or by using online banking.

You just need the reference numbers to make sure the money goes to the right place.

Avoiding surprises

Late or missing payments can lead to penalties and interest charges, so planning ahead is essential. A good tip is to set up a calendar reminder so that you don’t forget to make the payment on time.

Keeping a separate pot of money for tax that you save each month can also prevent you from scrambling at the last minute.

If you need help completing your tax return or want advice on paying tax, please get in touch. We would be happy to help you!

See: https://www.gov.uk/government/news/65-rise-in-self-assessment-payments-via-the-hmrc-app