Payments on account explained, with examples
The short answer: payments on account are advance payments towards your next Self Assessment bill. HMRC asks for half of last year's bill on 31 January and the other half on 31 July. They catch people out in the first year, when you pay last year's bill and half of this year's at once. On £30,000 of profit, that is about £6,798 on one day.
How the dates work
- 31 January: any balancing payment for the last tax year, plus your first payment on account for the current year.
- 31 July: your second payment on account for the current year.
- The next 31 January: the balancing payment. If you earned more than last year, you pay the difference. If you earned less, you get money back or pay less.
Your first January bill
Say your bill for 2025/26 is £4,532. On 31 January 2027 you pay that £4,532, plus £2,266 as the first payment on account for 2026/27. That is £6,798. On 31 July 2027 you pay another £2,266.
| Profit | Yearly bill | First 31 January | 31 July |
|---|---|---|---|
| £20,000 | £1,932 | £2,898 | £966 |
| £30,000 | £4,532 | £6,798 | £2,266 |
| £45,000 | £8,432 | £12,648 | £4,216 |
| £60,000 | £13,889 | £20,833 | £6,944 |
After the first year it settles down. If your profit stays the same, each January and July payment is half the bill and the balancing payment is close to zero.
Who has to make them
You make payments on account if both of these apply:
- your last Self Assessment bill was £1,000 or more, and
- less than 80% of your tax was taken at source, for example through PAYE on a job or pension.
So someone with a full-time job and a small side business often does not make them, because most of their tax is collected through their payslip. A sole trader with no other income usually does.
What they include
Payments on account cover Income Tax and Class 4 National Insurance. They do not include student loan repayments or Capital Gains Tax; those are paid in full on 31 January. If you also have a student loan, set aside 9% of your income above the threshold on top.
If your income is falling
If you expect this year's bill to be lower, for example because you have had a quieter year or stopped trading, you can reduce your payments on account in your HMRC online account or on form SA303. Base it on a sensible estimate. If you reduce them and your bill turns out higher, HMRC charges interest on the difference from the original due date.
If your income is rising
Payments on account are based on last year, so a good year means a bigger balancing payment the following January, plus higher payments on account from then on. Growing businesses get hit twice in the same January. Setting aside a fixed share of each invoice avoids the shock.
How much to set aside
A simple rule is 20% to 30% of your profit, depending on your income. Basic-rate profits need about 26% on the part above £12,570 for tax and Class 4 NI. Keep it in a separate savings account so you earn some interest until it is due.
Late payments and paying in instalments
Late payments are charged interest at Bank Rate plus 4 percentage points. Late balancing payments can also get penalties. If you cannot pay in full, you can set up a Time to Pay arrangement online for bills up to £30,000, or use HMRC's budget payment plan to pay weekly or monthly in advance.
Worked example over three years
Profits of £30,000, then £40,000, then £35,000. Bills of £4,532, £7,132 and £5,832.
| When | You pay | What it is |
|---|---|---|
| January, year 1 | £6,798 | Year 1 bill + first payment on account for year 2 |
| July, year 1 | £2,266 | Second payment on account for year 2 |
| January, year 2 | £6,166 | Balancing payment for year 2 + first payment for year 3 |
| July, year 2 | £3,566 | Second payment on account for year 3 |
| January, year 3 | £1,616 | Balancing payment for year 3 (a refund) + first payment for year 4 |
The second January is the painful one: a better year means a balancing payment plus a bigger payment on account. In year 3 profit fell, so the balancing part is negative and reduces what you pay.
How to pay
- Bank transfer using your Self Assessment reference (your UTR followed by K). Faster Payments usually arrive the same or next day.
- Direct Debit, either a one-off payment or a budget payment plan to pay monthly in advance.
- Debit or corporate credit card online. Personal credit cards are not accepted.
- Through your tax code for balancing payments under £3,000 if you file online by 30 December and have a PAYE job or pension. Payments on account cannot be paid this way.
How to check what you owe
Sign in to your HMRC online account or the HMRC app. Your Self Assessment statement shows each payment on account, the due date and anything already paid. HMRC also sends a statement before each deadline, but do not wait for it.
If you overpay
If your payments on account were more than your final bill, the extra shows as a credit on your account. HMRC either refunds it or uses it against your next payment. You can ask for a refund in your online account.
If you stop being self-employed
If you stop trading, or your income will now all be taxed through PAYE, you can reduce your payments on account to zero. Do this as soon as you know, so you are not paying tax on profits you will never make.
Making Tax Digital
From April 2026, sole traders and landlords with qualifying income over £50,000 must keep digital records and send quarterly updates. The threshold drops to £30,000 from April 2027 and £20,000 from April 2028. The quarterly updates are not payments: you still pay on 31 January and 31 July.
This is general information, not tax advice. Figures use 2026/27 rates for England, Wales and Northern Ireland. Scottish taxpayers pay different Income Tax rates.
Sources
Common questions
What are payments on account?
They are advance payments towards next year’s Self Assessment bill. Each one is half of your last bill, paid on 31 January and 31 July.
Why is my first tax bill so big?
In your first year with a bill over £1,000, you pay the whole of last year’s bill plus the first payment on account for this year, all on 31 January. That is usually one and a half times your bill.
Do I have to make payments on account?
Only if your last bill was £1,000 or more and less than 80% of your tax was collected at source, for example through PAYE. Otherwise you just pay once a year.
Can I reduce my payments on account?
Yes, if you expect this year’s bill to be lower. You can reduce them online or with form SA303. If you reduce them too far, you pay interest on the shortfall.
Do payments on account include student loan repayments?
No. They cover Income Tax and Class 4 National Insurance only. Student loan repayments and Capital Gains Tax are paid in full by 31 January.
Can I pay my payments on account monthly?
Yes. HMRC’s budget payment plan lets you pay weekly or monthly by Direct Debit towards your next bill, as long as you are up to date with past payments.
Does Making Tax Digital change payments on account?
No. Making Tax Digital for Income Tax adds quarterly updates for people with qualifying income over £50,000 from April 2026, but the 31 January and 31 July payment dates stay the same.