Understanding payments on account for Self Assessment
A factual guide to HMRC payments on account. How they're calculated, when they're due, how to reduce them, and why your January tax bill might be 50% bigger than expected.
Payments on account are the single most misunderstood part of Self Assessment. Every January, thousands of UK taxpayers open their HMRC bill expecting to pay last year's tax and find themselves owing 150% of it instead. That is not an error. That is payments on account at work.
This guide explains exactly how they are calculated, when they are due, how to reduce them if appropriate, and how to plan cash flow around them.
What a payment on account actually is
A payment on account is an advance payment toward your next year's Self Assessment tax bill. HMRC does not wait for the year to end to start collecting. Instead, it asks you to pay half of your expected next-year bill on 31 January, and the other half on 31 July, based on the assumption that next year's bill will be similar to this year's.
You are effectively on a rolling pay-as-you-go scheme that runs half a year ahead of where your actual liability sits.
Who has to make payments on account
You are in the payments on account system if both of the following are true for a given tax year:
- Your last Self Assessment tax bill was more than £1,000
- Less than 80% of your total tax was collected at source (for example, through PAYE)
If either condition fails, no payments on account are due. That is why high earners whose income is almost entirely taxed through PAYE often escape the regime even with large Self Assessment bills, while self-employed people and landlords with smaller bills still fall inside it.
The dates
Payments on account follow a two-payment cycle tied to the tax year (6 April to 5 April):
- 31 January. Balancing payment for the prior tax year, plus first payment on account for the current tax year.
- 31 July. Second payment on account for the current tax year.
- 31 January (next year). Balancing payment for the current tax year, plus first payment on account for the following year, and the cycle continues.
Why your January bill is bigger than you thought
Take a worked example. You're a self-employed consultant. In 2024/25 your Self Assessment bill was £10,000. You paid it in full on 31 January 2026, so you think you're done.
You're not. Here is what 31 January 2026 actually looks like:
| Item | Amount |
|---|---|
| Balancing payment for 2024/25 | £10,000 |
| First payment on account for 2025/26 | £5,000 |
| Total due 31 January 2026 | £15,000 |
Then on 31 July 2026, the second payment on account for 2025/26 is due: another £5,000.
By the time you file 2025/26 in January 2027, you'll already have paid £10,000 against that liability. If the actual bill is £12,000, the balancing payment is only £2,000. But the first payment on account for 2026/27 (£6,000) is also due, so January 2027 is £8,000.
The first year in the system is the painful one. After that, the payments smooth out, unless your income swings.
When payments on account are calculated wrong for your situation
The system assumes next year's income will look like this year's. That breaks in three common situations:
Your income has dropped. Clients lost, retirement mid-year, a pivot in the business. You do not want to prepay a full year ahead based on income you will not earn.
Your tax mix has changed. Moving from self-employment to PAYE, or selling a property that generated most of your rental profit, can reduce the Self Assessment element of your bill sharply.
One-off income this year. A capital gain or a large one-off commission that will not repeat pushes your payments on account up. HMRC will cheerfully collect next year's payments on the assumption it recurs.
How to reduce your payments on account
You can ask HMRC to reduce your payments on account if you have a reasonable basis for believing next year's liability will be lower. This is done through your HMRC online account, or via the SA303 form, or inside your Self Assessment return.
Important rules:
- You can reduce the payments, but you cannot cancel them below the expected liability
- If you reduce too aggressively and the final bill is higher, HMRC charges interest on the shortfall from the original due date, not from the filing date
- HMRC charges interest on underpayments at Bank Rate plus 4% (raised from plus 2.5% on 6 April 2025). Check gov.uk for the current rate.
- Penalties can apply on top of interest where HMRC believes the reduction was made negligently or fraudulently
The practical approach: only reduce if you have clear evidence that next year's income will be materially lower. Guesswork is expensive.
How to plan cash flow around payments on account
Three habits make this far less painful:
1. Save tax money as it comes in. Transfer 25% to 40% of every invoice (depending on your band) to a separate tax account the moment it lands. By January you are not scrambling.
2. Know your January number by October. If you file your return early, you know what January holds three months in advance. Filing early does not mean paying early. It just removes the surprise.
3. Use HMRC's Budget Payment Plan. You can pay HMRC in weekly or monthly instalments ahead of the deadline. It does not reduce the liability, but it smooths the cash flow.
The myth about 31 July
A common misconception: "July is optional because it's only an estimate." It is not. It is a statutory due date. Miss it and HMRC charges interest from 1 August at the prevailing late payment rate. There is no late filing penalty in July because there is nothing to file, but the interest clock starts the same way.
What changes with Making Tax Digital for Income Tax
From April 2026, sole traders and landlords with qualifying income over £50,000 will move into MTD for Income Tax. The filing mechanics change (quarterly updates, a year-end final declaration) but the payments on account rules remain the same. You still owe on 31 January and 31 July, and the calculation is still based on the prior year's liability.
The bottom line
Payments on account are not optional, but they are predictable. The first time you enter the system, budget for 150% of your expected tax bill in January. After that, understand where you sit in the cycle and put money aside monthly. If your income swings, know that you can request a reduction, but only with evidence and only with the interest clock running in the background.
If you want your payments on account projected as part of your tax planning, it is included in every Insights and Foresight package. Pricing on the S&J quote generator.