A payment on account is an advance instalment towards a self assessment tax bill. HMRC requires two such payments each year, each equal to half the previous year's liability, spreading the cost and reducing the balance due at the next deadline.
In one line: A payment on account is an advance instalment towards next year's self assessment tax, based on the prior year.
How a payment on account works
Payments on account apply once a self assessment bill passes a set threshold and most tax is not collected at source. Two instalments are due, on 31 January and 31 July, each based on the prior year's tax (HMRC).
If a taxpayer owed 3,000 GBP last year, two payments on account of 1,500 GBP each are due. These count towards the coming year's bill, with any difference settled as a balancing payment the following January.
Where income falls, a taxpayer can apply to reduce the payments, but reducing them too far means interest is charged on the shortfall once the actual liability is known.
Payment on account vs balancing payment
Payments on account are estimates paid in advance, based on the previous year. The balancing payment reconciles those estimates against the actual tax due, settling any underpayment or generating a refund.
A common shock is the first January after starting self employment, when a full year's tax plus the first payment on account fall due together, effectively requiring one and a half years of tax at once.
Primary source: GOV.UK: Understand your Self Assessment tax bill