Self Assessment Payments on Account Explained

Who has to make them

You normally make payments on account if your last Self Assessment bill was £1,000 or more and less than 80% of your tax was collected at source, for example through PAYE.

How they are calculated and when they fall due

HMRC takes your previous year’s Income Tax and Class 4 National Insurance bill and splits it in two. The first payment is due on 31 January during the tax year and the second on 31 July after it. Any balancing payment is due the following 31 January.

Why the first bill feels so big

In your first year of Self Assessment you may pay the full year’s tax plus the first payment on account in one go on 31 January. It is a timing effect, and it helps to set money aside monthly.

Reducing payments on account

If you expect lower profits, you can ask HMRC to reduce them online or on form SA303. Reducing by too much can lead to interest and penalties, so keep your estimate realistic.

When payments on account apply and when they do not

Payments on account are advance instalments towards your next Self Assessment bill. HMRC asks for them when your previous year’s Self Assessment bill was more than £1,000 and less than 80% of your income tax was collected at source, for example through PAYE or tax deducted from savings income. If either condition is not met, you simply pay any tax due in one go on 31 January after the tax year ends. Note that the £1,000 test looks at the bill as a whole, including Class 4 National Insurance that is collected through Self Assessment.

Each payment on account is normally half of the previous year’s bill. The first is due on 31 January during the tax year and the second on 31 July after it ends. Any balance, or any refund, is settled when you file and pay on the following 31 January, which is also the date the first payment on account for the new year falls due. The tax year runs from 6 April to 5 April.

Worked example: a first-year bill with payments on account

This is an illustrative example for a sole trader with profit of £30,000 in the 2025/26 tax year, living in England, with no other income.

On 31 January 2027 this person pays £4,531.80 for 2025/26 plus the first payment on account of £2,265.90, which is £6,797.70 in one go. On 31 July 2027 they pay a second £2,265.90.

Now suppose profit rises to £40,000 in 2026/27. Taxable income is £27,430, income tax is £5,486.00 and Class 4 NI is £1,645.80, a total of £7,131.80. They have already paid £4,531.80 on account, so the balancing payment on 31 January 2028 is £2,600.00, plus the first payment on account for the next year. If profit had fallen instead, the overpayment would be refunded or set against the next bill.

Reducing a payment on account properly

If you expect your income to fall, you can ask HMRC to reduce your payments on account, online or on a paper claim form. You must give a reason and a realistic estimate of the lower bill. If you reduce them too far and the final bill turns out higher, HMRC charges interest on the shortfall and may charge a penalty if the claim was made carelessly or dishonestly. A reduction is therefore a cash-flow tool for genuine falls in income, not a way to defer tax.

Common mistakes with payments on account

• Forgetting that the January bill includes both the balancing payment and the next first payment on account.
• Not saving for the July instalment, which many people overlook.
• Reducing payments on account without a reasonable basis.
• Assuming payments on account are an extra tax rather than a prepayment.
• Paying late: a missed deadline brings interest at Bank Rate + 4% and late payment penalties of 5% after 30 days, six months and 12 months.

Practical checklist

1. Check last year’s bill and the 80% at-source test.
2. Diarise the payment deadlines — 31 January and 31 July each year.
3. Set aside a monthly amount, about one-twelfth of your expected bill.
4. Review your profit in-year and ask for a reduction if it will genuinely fall.
5. If you cannot pay in full, contact HMRC early. Time to Pay is generally available for debts under £30,000.

Further reading: how to reduce payments on account, how to save for your tax bill, late payment penalties explained and our 31 January 2027 preparation plan. Sole traders can see our Self Assessment for sole traders service.

SATR is a trading style of Accotax. Our qualified UK accountants calculate your bill and payments on account and file your return online for a fixed fee from £199 + VAT.

This is general information, not personal tax advice.

Frequently asked questions

Are payments on account an extra tax?

No. They are prepayments, and any difference is settled when you file your return.

Can I get a refund if I overpaid?

Yes. If your payments on account exceed your final bill, HMRC refunds the difference or credits it to your next bill.

Do payments on account include National Insurance?

Yes. The Self Assessment bill that determines them includes Class 4 National Insurance, so your payments on account usually cover both income tax and Class 4.

What if my first year was part-year?

Payments on account are based on the previous full Self Assessment bill, so a first full year of profit can produce a large January bill. Plan ahead and set money aside.

Can I pay by instalments?

Often yes. If you cannot pay in full, ask HMRC about Time to Pay, which is generally available for debts under £30,000, before the due date if possible.

The Bottom Line

Payments on account are HMRC’s way of collecting next year’s tax early: two instalments, each half of your last bill, due on 31 January and 31 July. They catch out new filers most — that first January can cost 150% of one year’s bill — so set money aside monthly and ask for a reduction early if your profits fall.

Want your bill worked out for you? SATR’s qualified UK accountants will calculate your payments on account and file your Self Assessment return online for a fixed fee from £199 + VAT. Start your tax return today or get an instant quote.