Payment on account is HMRC’s system for spreading your Self Assessment tax liability across two instalments each year. If your tax bill exceeds £1,000 and less than 80% of your tax is collected through PAYE, you must make two advance payments — one by 31 January and one by 31 July — each equal to 50% of your previous year’s bill. Many people are caught off guard by payment on account in their first year of self-employment, when a single January payment covers both the tax owed for the previous year and the first instalment for the next.
For a full overview of Self Assessment, see the Self Assessment hub.
What Is Payment on Account?
| Feature | Detail |
|---|---|
| What it is | Two advance tax payments, each 50% of your previous year’s Self Assessment bill |
| First payment due | 31 January (same day as the return deadline) |
| Second payment due | 31 July |
| Who it applies to | Anyone with a Self Assessment bill over £1,000 where less than 80% was collected via PAYE |
| Balancing payment | Due 31 January — settles the difference between payments on account and the actual bill |
| Can you reduce? | Yes — if you expect to earn less, you can apply to reduce |
Who Has to Pay
You make payments on account if both of these apply:
- Your Self Assessment tax bill for the year is more than £1,000
- Less than 80% of your total tax liability was collected at source (e.g. via PAYE on employment income)
If either condition is not met — for example, your bill is £800, or you have a large salary with PAYE covering most of your tax — no payments on account are required.
Common situations where payment on account applies
| Situation | Likely outcome |
|---|---|
| Full-time self-employed, no PAYE income | Almost always applies — 0% collected at source |
| Employed plus self-employed side income | Applies if the side income tax exceeds £1,000 |
| Landlord with rental profits | Applies once rental profit tax exceeds £1,000 |
| Freelancer who has gone full-time | Applies from first year the bill tops £1,000 |
| Director of own limited company drawing dividends | Applies if dividend tax bill exceeds £1,000 |
How the Calculation Works
Each payment on account is exactly 50% of your previous year’s Self Assessment tax bill. HMRC calculates this automatically — it appears on your Self Assessment statement and in your online tax account.
What counts in the previous year’s bill for this calculation:
- Income tax
- Class 4 National Insurance contributions (self-employed)
What is excluded:
- Capital Gains Tax
- Student loan repayments
- Class 2 National Insurance
- Penalties or interest
Worked Example: A Freelance Copywriter
Emma is a freelance copywriter. Her tax bill for 2024/25 was £6,000 (income tax + Class 4 NI).
| Payment | Date | Amount |
|---|---|---|
| Balancing payment for 2024/25 | 31 January 2026 | £3,000 (after paying £3,000 on account in July 2025) |
| First payment on account for 2025/26 | 31 January 2026 | £3,000 (50% of £6,000) |
| Total due 31 January 2026 | £6,000 | |
| Second payment on account for 2025/26 | 31 July 2026 | £3,000 |
Emma’s second payment on account of £3,000 is due 31 July 2026. If her actual 2025/26 bill turns out to be £7,000, she owes a balancing payment of £1,000 on 31 January 2027, plus a new round of payments on account (£3,500 each) for 2026/27.
The First-Year Shock
Many people discover payment on account the hard way — in January of their second year of self-employment. Their first tax bill arrives and it includes:
- The full tax bill for the first year of self-employment (e.g. £4,000)
- Plus the first payment on account for the following year (e.g. £2,000)
- Total due in January: £6,000 — despite only expecting to pay £4,000
This is not an error. HMRC is collecting the current year’s tax and advance payment for next year simultaneously.
Planning tip: From the first month of self-employment, set aside 20–30% of your net income into a separate savings account designated for tax. This ensures the January bill does not come as a financial shock.
Key Deadlines for 2025/26 and 2026/27
| Payment | Due Date | Amount |
|---|---|---|
| Second payment on account for 2024/25 | 31 July 2025 | 50% of 2023/24 bill |
| Balancing payment for 2024/25 + first payment on account for 2025/26 | 31 January 2026 | Balancing amount + 50% of 2024/25 bill |
| Second payment on account for 2025/26 | 31 July 2026 | 50% of 2024/25 bill |
| Balancing payment for 2025/26 + first payment on account for 2026/27 | 31 January 2027 | Balancing amount + 50% of 2025/26 bill |
How to Reduce Your Payments on Account
If you expect your income — and therefore your tax bill — to be lower in the current year than the previous year, you can apply to reduce your payments on account. You do not need to wait and claim a refund later.
When you might reduce:
- Your self-employment income has dropped significantly
- You have stopped self-employment or reduced hours
- You have a large allowable expense in the current year (e.g. new equipment)
- You have increased pension contributions that will reduce your taxable income
- Your rental income has fallen or a property is vacant
How to apply:
- Log into your HMRC online tax account
- Navigate to your Self Assessment account
- Select “Reduce payments on account”
- Enter your estimated current-year liability
Alternatively, complete form SA303 and send it to HMRC.
Important warning: If you reduce your payments on account and your actual bill is higher than estimated, HMRC will charge interest on the underpayment from the original due dates. The interest rate is currently around 7.5% per year (Bank of England base rate + 2.5 percentage points). This is not a penalty — just interest — but it adds up.
Only reduce your payments if you have a genuine, evidence-based reason for expecting a lower bill. Reducing speculatively just to delay payment creates an interest liability.
Example: Reducing After a Quiet Year
Tom’s 2024/25 tax bill was £8,000. His payments on account for 2025/26 would normally be £4,000 in January 2026 and £4,000 in July 2026. However, Tom knows his income in 2025/26 has been much lower — he estimates his bill will be closer to £3,000.
Tom applies to reduce his payments on account to £1,500 each. In January 2027, his actual bill is confirmed at £3,200:
- He has already paid £3,000 on account
- Balancing payment due: £200
- No interest — his estimates were close enough
If Tom’s actual bill had been £5,000 instead, he would owe £2,000 as a balancing payment plus interest on the shortfall from the original due dates.
What Happens If You Cannot Afford to Pay
If you cannot pay your payment on account on time, you have options:
- Reduce your payments on account (if you genuinely expect a lower bill) — see above
- Set up a Time to Pay arrangement with HMRC — allows you to spread the debt over monthly instalments
- Pay what you can now — HMRC charges interest on any unpaid balance, but partial payment reduces the interest accruing
For full details on spreading a tax debt, see our HMRC Time to Pay guide.
Do not simply ignore a payment on account deadline. Interest accrues daily and HMRC can escalate to debt collection. If your finances are genuinely stretched, contact HMRC on 0300 200 3822 before the deadline — they are generally more flexible with people who engage proactively.
Payment on Account vs Balancing Payment
These are two separate things that often appear together on a January bill:
| Balancing payment | Payment on account | |
|---|---|---|
| What it is | The final top-up (or refund) that settles the previous year’s actual tax bill | An advance payment toward the current year’s estimated bill |
| Based on | Your actual confirmed income and tax | 50% of previous year’s bill |
| When due | 31 January | 31 January (first) and 31 July (second) |
| Can you reduce it? | No — it’s the settled amount | Yes — via SA303 or online |
If your payments on account in total exceeded your actual tax bill, HMRC will refund the difference or credit it to your account. This often happens in a year when income fell significantly.
Where to Check Your Payments on Account
Log into your HMRC online account and navigate to:
- Self Assessment → View your account → Payments due
This shows your upcoming payment on account dates and amounts, confirms what you have already paid, and allows you to apply for a reduction.
For a full picture of your Self Assessment obligations, see our Self Assessment Deadlines guide and the Self Assessment Guide.