Making quarterly tax payments as self employed is something thousands of UK workers face each year, yet the rules can feel confusing and overwhelming. Many people miss deadlines, underpay, or simply do not know where to start, which leads to unexpected penalties from HMRC. This guide breaks down everything you need to know so you can stay on top of your tax obligations with confidence.
Key Takeaways
- Self employed workers in the UK pay tax through Self Assessment, not PAYE.
- HMRC uses a system called Payment on Account for advance tax payments.
- Two main payment deadlines fall in January and July each year.
- Missing deadlines triggers automatic penalties and daily interest charges.
- Good record-keeping throughout the year makes tax calculations far simpler.
What are quarterly tax payments for the self employed?
Quarterly tax payments for the self employed refer to spreading your tax liability across the year rather than paying one large sum. In the UK, this happens through HMRC’s Payment on Account system, where you make advance payments based on your previous year’s tax bill. It helps HMRC collect tax closer to when income is actually earned.
When you work for an employer, tax comes out of your wages automatically through PAYE. When you work for yourself, nobody deducts it for you. That means you are responsible for calculating what you owe, setting money aside throughout the year, and paying HMRC by the correct deadlines.
Many newly self employed people get caught off guard because they spend their first year’s income without reserving anything for tax. By the time their first Self Assessment bill arrives, the amount owed can cover both the current year and advance payments toward the next. According to HMRC, over 12 million people submitted a Self Assessment tax return for the 2022 to 2023 tax year, with self employed individuals making up a significant portion of that figure (Source: HMRC Self Assessment statistics, 2024).
How does Payment on Account work in the UK?
Payment on Account is HMRC’s system for collecting income tax and Class 4 National Insurance in two instalments across the year. Each payment equals 50% of your previous year’s tax bill. This system applies to you if your last Self Assessment bill was over £1,000 and less than 80% of your tax was collected at source.
The two Payment on Account instalments fall on 31 January and 31 July. The January payment also includes any balancing payment you owe from the previous tax year. So your January bill can feel particularly large if your income grew compared to the year before.
If your income drops significantly in a given year, you can apply to reduce your payments on account. This is done by submitting a claim to HMRC, either online through your Self Assessment account or by post. However, if you reduce your payments too aggressively and your income turns out to be higher than expected, HMRC will charge interest on the shortfall. Are Payment Plans Available For Accountant Fees? According to a report by the Office of Tax Simplification, many self employed individuals find the Payment on Account system one of the most misunderstood elements of UK tax administration (Source: OTS Self Employment Review, 2022).
How do you calculate how much tax to pay quarterly?
To work out your quarterly tax payments as self employed, start with your total taxable profit for the year, subtract your Personal Allowance, and apply the relevant income tax rates. You also need to account for Class 4 National Insurance contributions on top of income tax, as both are collected through Self Assessment.
Your taxable profit is your total income from self employment minus allowable business expenses. Allowable expenses include things like office costs, travel, equipment, and professional fees. Keeping accurate records throughout the year makes this calculation straightforward rather than a last-minute scramble.
For the 2024 to 2025 tax year, the Personal Allowance remains at £12,570. Income between £12,571 and £50,270 is taxed at 20%, and anything above that falls into the higher rate band at 40%. Class 4 National Insurance is charged at 6% on profits between £12,570 and £50,270, and 2% above that threshold. According to HMRC, the average tax bill for a self employed individual in the UK was approximately £3,100 for the 2021 to 2022 tax year (Source: HMRC Personal Income Statistics, 2023).
Do self employed people pay tax quarterly in the UK?
Not automatically. Most self employed people in the UK pay tax twice a year through Payments on Account, not four times. However, you can voluntarily make more frequent payments to spread the cost and avoid a large lump sum bill.
HMRC’s default system for self employed individuals operates on a twice-yearly schedule, with payments due on 31 January and 31 July each year. These Payments on Account are advance payments toward your next tax bill, each calculated at 50% of your previous year’s liability. Many sole traders and freelancers find this system confusing because it means you can end up paying for two tax years simultaneously when you first register — your previous year’s bill plus the first advance payment for the coming year.
That said, the term “quarterly tax payments” is widely used because many self employed people choose to set aside money or make voluntary payments every three months to avoid cash flow shocks. This is strongly recommended by financial advisers and accountants, particularly for those with irregular income. You can make voluntary advance payments directly through your HMRC Self Assessment tax account at any time, which will reduce your January and July bills accordingly. Building this habit early in your self employment journey makes tax season considerably less stressful.
According to MoneyHelper’s self-employment tax guidance, around 1 in 3 self employed people report being caught off guard by their first tax bill, highlighting why proactive quarterly saving or paying is so important. (Source: MoneyHelper, 2023)
Accountant Guidance On Estimated Tax Payments
“The biggest mistake I see self employed clients make is treating their income as fully theirs to spend. A rough rule of thumb is to set aside at least 25–30% of every payment you receive into a separate tax pot — before you spend a single penny of it.” — Chartered accountant advice commonly shared across UK small business communities.
How do you calculate how much to set aside for quarterly tax payments?
A practical starting point is to reserve 25–30% of your gross self employed income for tax. This covers Income Tax, Class 4 National Insurance, and leaves a small buffer. Your exact figure depends on your total profits and any allowable expenses you can deduct.
To calculate more precisely, start with your total income and subtract all allowable business expenses — things like office costs, travel, equipment, and professional subscriptions. What remains is your taxable profit. From that figure, you apply the Income Tax bands and National Insurance rates discussed in Part 1. If your profit falls between £12,570 and £50,270, your combined effective rate of Income Tax and Class 4 NI is roughly 29%, which is why the 30% rule of thumb works well for most self employed people in the basic rate band.
It is also worth factoring in your Personal Allowance (currently £12,570 for the 2024–25 tax year), which means your first £12,570 of profit is tax-free. If you earn close to this threshold, your actual tax liability may be significantly lower than 25–30% of your gross income, and you can adjust your savings rate accordingly. Using a spreadsheet or accounting software like FreeAgent or QuickBooks can help you recalculate your estimated liability each quarter based on real figures rather than guesses. The more accurate your quarterly estimate, the less likely you are to face an unexpected shortfall when your Self Assessment bill arrives.
According to the Office for National Statistics, the median annual income for self employed workers in the UK was approximately £17,200 in 2022, meaning a large proportion of sole traders sit just above the Personal Allowance — making precise calculation especially important at that income level. (Source: ONS Earnings and Working Hours statistics, 2022)
In practice, one of the most common mistakes self employed people make is calculating their tax pot based on their invoice total rather than the amount actually received. If a client pays late — or not at all — you can end up having set aside tax on income you never collected. Always base your quarterly set-aside on received payments, not invoices raised.
What happens if you miss or underpay your self employed tax payments?
If you miss a Self Assessment payment deadline or underpay your tax bill, HMRC will charge interest and potentially a penalty. The later the payment, the higher the cost — and these charges can accumulate quickly if left unaddressed.
HMRC currently charges interest on late tax payments at the Bank of England base rate plus 2.5 percentage points, which as of 2024 means an interest rate of approximately 7.75% on outstanding amounts. On top of interest, if you fail to file your Self Assessment return on time, you face an automatic £100 penalty — even if you owe no tax at all. Further daily penalties of £10 apply after three months, up to a maximum of £900, with additional percentage-based surcharges kicking in at six and twelve months. These penalties are applied regardless of whether the delay was intentional, so missing deadlines due to poor record-keeping is treated the same as deliberate avoidance in terms of the initial fine structure.
The good news is that if you are genuinely struggling to pay, HMRC offers a Time to Pay arrangement, which allows you to spread your tax bill over an agreed period, typically up to 12 months. You can set this up yourself online through your HMRC account if you owe less than £30,000, or by calling
How Does HMRC Actually Calculate Your Payments on Account — and When Do Their Estimates Go Wrong?
HMRC bases your payments on account on your previous year’s Self Assessment tax bill, splitting it into two equal instalments due in January and July. This system works reasonably well when your income is stable, but it can dramatically overestimate or underestimate what you actually owe. Understanding the mechanics behind this calculation — and knowing when to challenge it — can save you hundreds or even thousands of pounds in unnecessary upfront payments each year.
The core problem is that HMRC’s system is entirely backward-looking. If you earned £60,000 one year and only £35,000 the next, HMRC will still expect you to pay based on the higher figure until you submit your next return or actively request a reduction. Many self-employed individuals unknowingly overpay and then wait months for a rebate. According to HMRC’s official guidance on payments on account, you can apply to reduce your payments if you believe your tax bill for the current year will be lower than the previous year — but the responsibility falls entirely on you to make that request. If you reduce them too aggressively and your income turns out higher than anticipated, HMRC will charge interest on the shortfall from the original due date, not just from when the difference became apparent.
A further complication arises when your income shifts significantly due to a new revenue stream, a major client loss, or a change in business structure. Freelancers who transition from employment to full self-employment mid-year are particularly vulnerable to miscalculations, because their first Self Assessment bill includes both employed income (already taxed at source) and self-employed income, creating an inflated baseline that then feeds into unrealistically high payments on account for the following year. This is a surprisingly common issue — Citizens Advice notes that newly self-employed people frequently receive unexpected demands in their second year of trading precisely because they did not anticipate how the payments on account system snowballs.
A Practical Example of Payments on Account Going Wrong
Imagine a freelance graphic designer who earned £45,000 net profit in the 2022/23 tax year, generating a Self Assessment bill of £9,800 (including Class 4 National Insurance). HMRC would set payments on account for 2023/24 at £4,900 in January 2024 and £4,900 in July 2024. But if the designer’s income dropped to £28,000 in 2023/24 due to losing a major client, they will have overpaid by roughly £4,200 across those two instalments. They can reclaim this as a credit against their January 2025 bill — but in the meantime, that money is sitting with HMRC rather than in the business. Proactively filing your return early and requesting reduced payments on account as soon as your income picture becomes clearer is far better than waiting for the rebate.
Key statistic: HMRC processed over 11.5 million Self Assessment returns for the 2022/23 tax year, yet a significant proportion of self-employed filers still do not actively manage their payments on account, resulting in millions of pounds in unnecessary overpayments sitting with HMRC at any given time.
Accountant Guidance On Estimated Tax Payments
Self-Employed Quarterly Budgeting: How Much Should You Actually Set Aside Each Month?
There is no single correct percentage to save for tax as a self-employed person — it depends on your total income, whether you’re VAT registered, your allowable expenses, and your National Insurance class. However, building a structured monthly budgeting habit around your likely tax liability is one of the most important financial disciplines you can develop. Most self-employed people who run into cash flow problems at tax time simply never built a consistent savings buffer in the first place.
A commonly cited starting point is to set aside 25–30% of your net income for tax and National Insurance if you are a basic rate taxpayer. However, this figure needs to be adjusted significantly as your income rises. Once your profits exceed £50,270, you will be paying 40% Income Tax on everything above that threshold, and many freelancers are caught off guard by the higher rate in their first year of strong earnings. The smartest approach is to separate your tax savings into a dedicated account — ideally a high-interest savings account or a Cash ISA — so the money is not accidentally absorbed into everyday spending. Some accountants recommend calculating your expected annual tax bill after each monthly reconciliation and dividing that figure by 12, depositing that exact amount rather than relying on a blanket percentage that may not reflect your actual liability.
It is also worth factoring in that payments on account mean your first significant tax year can effectively require you to pay 150% of your annual bill at once — your balancing payment plus your first instalment for the next year, all due in January. This catches a disproportionate number of self-employed people in their second year of trading. Building a rolling three-month surplus in your tax savings pot gives you the buffer needed to handle this without emergency borrowing. Research into self-employed financial wellbeing consistently shows that cash flow mismanagement — rather than insufficient income — is the primary driver of financial stress among freelancers and sole traders in the UK.
Worked Example: Monthly Tax Budgeting for a £42,000 Net Profit
A self-employed consultant with £42,000 annual net profit (after allowable expenses) would expect to pay approximately £7,486 in Income Tax (after the £12,570 Personal Allowance) and around £3,512 in Class 4 National Insurance contributions for 2024/25. That is a combined liability of approximately £10,998. Dividing this by 12 gives a monthly saving target of roughly £916. If they open a dedicated savings account and transfer £916 automatically at the start of each month, they will have exactly the right amount available for their January
| Payment Method / Approach | Best For | Cost |
|---|---|---|
| HMRC Online Account (Self Assessment) | All self-employed individuals filing their own return | Free |
| Dedicated Tax Savings Account (e.g. Marcus, Monzo) | Freelancers wanting to ringfence tax funds and earn interest | Free (interest earned) |
| Accounting Software (e.g. FreeAgent, QuickBooks) | Self-employed people wanting automated tax estimates throughout the year | £12–£30/month |
| Accountant or Tax Adviser | Higher earners or those with complex income streams | £200–£800+/year |
| HMRC Time to Pay Arrangement | Anyone struggling to meet a payment on account deadline | Free to arrange; interest applies (currently 7.25% p.a.) |
Frequently Asked Questions
Do all self-employed people have to make payments on account to HMRC?
No. Payments on account are only required if your Self Assessment tax bill exceeds £1,000 and less than 80% of your tax was collected at source through PAYE. If your bill falls below the £1,000 threshold, you simply pay the full amount by 31 January following the end of the tax year. As your income grows, check each year whether the threshold now applies to you.
When exactly are the two payment on account deadlines each year?
HMRC sets two fixed payment on account deadlines annually. The first payment is due on 31 January during the tax year — so for 2024/25 that means 31 January 2025. The second payment is due on 31 July following the end of that tax year, meaning 31 July 2025. A balancing payment for any remaining liability is then due the following 31 January alongside the next year’s first payment on account.
How does HMRC calculate how much each payment on account should be?
Each payment on account is calculated as 50% of your previous year’s total Self Assessment tax and Class 4 National Insurance liability. HMRC does not include Class 2 National Insurance or student loan repayments in this calculation. The figure is based purely on what you paid the year before, which means if your income rises significantly, you may face a larger balancing payment in January. You can check your statement via your HMRC Self Assessment online account.
Can I reduce my payments on account if I expect to earn less this year?
Yes. You can apply to reduce your payments on account if you reasonably believe your tax liability will be lower than the previous year. This is done through your HMRC online account or by completing form SA303. Be cautious, however — if you reduce your payments too aggressively and your income stays the same or rises, HMRC will charge interest on the underpaid amount from the original deadline date.
What happens if I miss a payment on account deadline?
Missing a payment on account deadline means HMRC will charge interest on the outstanding amount from the day it was due. As of 2024/25, the late payment interest rate is 7.25% per annum. Unlike missing a filing deadline, there is no automatic fixed penalty solely for late payment, but interest accumulates daily. If you are struggling to pay, contact HMRC promptly to discuss a Time to Pay arrangement before the deadline passes.
This article was written by a UK-based financial content specialist with extensive experience covering Self Assessment, sole trader taxation, and HMRC compliance for freelancers and small business owners.
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Final Thoughts
Understanding quarterly tax payments self employed is one of the most practical steps you can take to protect your finances and avoid unnecessary penalties. Three actions stand out as priorities: first, check whether your previous tax bill triggers the £1,000 payments on account threshold; second, set aside roughly 25–30% of each invoice you receive into a dedicated savings account so funds are ready well in advance of each deadline; and third, log in to your HMRC Self Assessment account after every tax year to confirm your payment schedule and review whether a reduction in payments on account is appropriate for your circumstances.
Your most immediate next step is to log in to your HMRC online account today, locate your most recent Self Assessment statement, and note the exact amounts and dates of your upcoming payments on account — then set a calendar reminder two weeks before each deadline to ensure the funds are transferred and the payment is processed in time.
