Payments on account explained

An employee pays tax every payday through PAYE. Someone who is self-employed, or who has rental income or other untaxed income, would otherwise pay nothing until the year was over. Payments on account bridge that gap. GOV.UK describes them as payments towards your next tax bill, and each one is half of the tax you owed the year before. They include Class 4 National Insurance if you are self-employed.

Because they are based on the previous year, HMRC treats each year as a guide to the next. If your income stays steady, the two payments roughly cover the tax for the year, and the January balancing payment is small.

Payments on account apply once your self assessment bill reaches a certain level. GOV.UK says you do not have to make them if either of these is true:

• the amount of tax you owed last year was less than £1,000
• last year you paid more than 80% of the tax you owed outside of self assessment, for example through your tax code or because your bank had already deducted interest on your savings

So an employee with a small amount of rental income may never make them, while a sole trader whose whole income comes through self assessment usually will once the bill passes £1,000.

GOV.UK gives an example that shows why the first January can hurt. It takes a tax bill of £3,000 for 2023 to 2024. If no payments on account were made the year before, the £3,000 is due by 31 January 2025, together with a first payment on account of £1,500 towards 2024 to 2025, making £4,500 in one go. The second payment on account of £1,500 then follows in July.

In later years the pattern settles down. In the same example, someone who had already paid £1,800 on account for 2023 to 2024 would owe a balancing payment of £1,200, plus the £1,500 first payment on account, so £2,700 by 31 January 2025.

GOV.UK says the balancing payment is worked out by deducting the payments on account you have made from the total tax you owe, and it is due by midnight on 31 January the following year. If you earned more than the estimate, you will owe a balancing payment. If you earned less, the payments on account may have been too high, and you may be able to claim a refund.

GOV.UK adds that the balancing payment can include amounts for capital gains or, if you are self-employed, student loans, which payments on account do not cover. That is why a year with a property or share sale can still leave a large January bill even when payments on account were made in full.

If you expect your income to fall, for example because you have stopped trading or lost a tenant, you can ask HMRC to reduce your payments on account. GOV.UK says you can do this online through your account by choosing to reduce payments on account, or by post on form SA303.

The risk is reducing them too far. GOV.UK says that if you reduce your payments on account and your tax bill is higher than expected, you will be charged interest on the difference. HMRC's late payment interest rate was 7.75% from 9 January 2026 when we checked in November 2026. A cautious reduction based on figures you can stand behind is safer than a hopeful one.

Applying the usual 31 January and 31 July dates, the two payments on account for the 2026 to 2027 tax year fall on 31 January 2027 and 31 July 2027, and the balancing payment on 31 January 2028. Setting money aside each month makes those dates far less painful, and HMRC's Budget Payment Plan lets you pay towards your next bill by Direct Debit, as our guide on how to pay your self assessment tax bill explains. If you have started a side business, our guide to paying tax on a side hustle shows how the first year usually unfolds.

As with all our guides, this is general information and not tax advice. If you would like an accountant to check your figures before you reduce anything, our self assessment tax returns page explains what is involved. We read every enquiry and, where we can, we will put you in touch with a local accountant; see how it works.