The short answer
A payment on account is an advance payment towards your next Self Assessment bill. Each one is half of your previous year’s bill, and they are due on 31 January and 31 July. When you file your return, a balancing payment settles any difference.
Who has to make them
You make payments on account unless one of two things is true:
- your last Self Assessment bill was less than £1,000; or
- more than 80% of all the tax you owed for the year was already deducted at source, mainly through PAYE on a salary or pension.
| Situation | Self Assessment bill | Taxed at source | Payments on account? |
|---|---|---|---|
| Small side income | £950 | £0 | No: under £1,000 |
| Employee with some freelance work | £1,800 | £8,000 | No: 82% at source |
| Employee with more freelance work | £3,000 | £7,000 | Yes: £1,500 each |
| Full-time sole trader | £8,000 | £0 | Yes: £4,000 each |
Employed people with a little extra income often avoid payments on account entirely, because most of their tax is collected through PAYE. Full-time sole traders and landlords nearly always make them.
The payment dates
For the 2026/27 tax year, which runs from 6 April 2026 to 5 April 2027, the payments fall like this:
- 31 January 2027First payment on account for 2026/27
Paid alongside the balancing payment for 2025/26.
- 31 July 2027Second payment on account for 2026/27
The same amount again.
- 31 January 2028Balancing payment for 2026/27
The 2026/27 bill minus the two payments on account, plus the first payment on account for 2027/28.
The first payment on account is due before the tax year it relates to has even ended. HMRC is collecting tax as you earn, rather than up to 22 months later.
Your first year
In your first year of self-employment, nothing is due until the January after the tax year ends. Then the whole first year’s bill and the first payment on account for the next year fall due together.
- Balancing payment: whole first-year bill£8,000
- First payment on account for next yearHalf of £8,000£4,000
- Due on the first 31 January£12,000
- Second payment on account, 31 July£4,000
Two years' tax in six months
After a first year with no tax bills, you pay a year and a half’s tax in January and a further half-year in July. This is the single most common cash-flow shock for new sole traders. Save from your first invoice.
A steady year
Once you are established and your profit is stable, payments on account smooth out the bill. Each January you pay a small balancing payment plus half of the year’s tax, and each July the other half.
- Payments on account already made towards 2025/262 × £3,500£7,000
- 2025/26 bill£8,000
- Balancing payment for 2025/26£1,000
- First payment on account for 2026/27Half of £8,000£4,000
When your income changes
Because payments on account are based on last year’s bill, a change in profit shows up a year late. A good year means a bigger January bill the year after; a bad year means you have paid too much and get some back.
- Payments on account
- £3,000 each
- 31 January 2028 balance
- £4,000
- Plus next year's first payment
- £5,000
- Due 31 January 2028
- £9,000
- Payments on account
- £5,000 each
- Overpaid for 2026/27
- £4,000
- Next year's first payment
- £3,000
- Net on 31 January 2028
- £1,000 back
A rising income is the harder case: the extra tax arrives all at once with a bigger payment on account on top. If your profit is growing fast, save a percentage of every invoice rather than relying on last year’s bill as a guide.
Reducing your payments on account
If you expect this year’s bill to be lower, you can ask HMRC to reduce your payments on account, either in your online account or on form SA303. You might do this after a quiet year, a move into employment, a big pension contribution or higher expenses.
- Payments on account as set2 × £5,000
- Reduced to2 × £3,000
Do not cut too far
If you reduce your payments and the final bill turns out higher, HMRC charges interest on the shortfall from the original due dates. Reducing to £1,000 each when the bill is £6,000 leaves £4,000 to pay in January 2028, plus interest. Deliberately or carelessly claiming too big a reduction can also lead to a penalty.
You can also reduce them to zero if you expect no Self Assessment bill at all, for example after stopping trading.
What is left out
Payments on account are based on your Income Tax and Class 4 National Insurance only. These are paid with the balancing payment, but never in advance:
- student loan and postgraduate loan repayments;
- voluntary Class 2 National Insurance;
- Capital Gains Tax.
- Income Tax and Class 4£8,000
- Student loan£1,200
- Each payment on accountHalf of £8,000 only£4,000
So if you repay a student loan through Self Assessment, expect a January balancing payment every year, even when your profit is stable. Capital Gains Tax on residential property is different again: it is due within 60 days of the sale.
Paying late
Interest is charged on any late payment, including payments on account, from the day after it was due. The rate is the Bank of England base rate plus 4%.
Late payment penalties apply only to the balancing payment:
| Still unpaid after | Penalty |
|---|---|
| 30 days | 5% of the tax unpaid |
| 6 months | A further 5% |
| 12 months | A further 5% |
Filing late is penalised separately: £100 straight away, then daily penalties after three months and further penalties at six and twelve months. File on time even if you cannot pay, and contact HMRC about a payment plan. Sole traders and landlords within Making Tax Digital move to a newer system from 2026/27: penalty points for late submissions, and late payment penalties of 3% of tax unpaid after 15 days and a further 3% after 30 days, then a daily rate.
Ways to pay and to budget
- Save a percentage of every invoice in a separate account. Many sole traders put aside 20% to 30%.
- Budget payment plan: pay HMRC weekly or monthly by direct debit towards your next bill, if you are up to date with earlier payments.
- Time to Pay: if you owe £30,000 or less and cannot pay in full, you can usually set up a monthly plan online, though interest still applies.
- Pay through your tax code: if you also have a job and owe less than £3,000, filing online by 30 December lets HMRC collect the balancing payment through PAYE over the following tax year. Payments on account cannot be collected this way.
Making Tax Digital and payments on account
Making Tax Digital for Income Tax started in April 2026 for sole traders and landlords with income over £50,000. It brings quarterly updates to HMRC, but it does not change when you pay. Payments on account are still due on 31 January and 31 July, and the balancing payment on 31 January.
One benefit of the quarterly updates is that HMRC’s estimate of your tax builds up through the year. That makes it easier to judge whether to reduce your payments on account, or to save more because your bill is heading up.
Starting or leaving a job
A change in how your income is taxed can switch payments on account on or off. If you take a job and most of your tax is then collected through PAYE, more than 80% of your tax may be taxed at source. HMRC applies the test to the latest return, so the change usually shows up a year later, and you can ask to reduce your payments on account in the meantime.
The reverse also happens. If you leave a job to go self-employed, your first Self Assessment bill may be the first one over £1,000, and payments on account start from the next January.
- PAYE collected from the job£7,000
- Self Assessment bill on the new business£3,000
- Share of tax collected at source70%
Landlords, partners and others
Payments on account apply to anyone who pays tax through Self Assessment, not just sole traders. Common cases:
- Landlords, whose rental profit is not taxed at source. The bill includes Income Tax on rent but no National Insurance.
- Partners in a business partnership, who each pay on their share of the profit.
- Company directors taking dividends above the £500 dividend allowance, because dividend tax is not deducted at source.
- Higher earners paying the High Income Child Benefit Charge or with large savings interest.
Checking HMRC's figures
After you file, your HMRC online account shows a statement of everything due. Check that:
- each payment on account is half of the Income Tax and Class 4 NI on your latest return, not the whole bill;
- student loan and Capital Gains Tax are in the balancing payment, not the payments on account;
- any payments on account you have already made have been credited against the right year;
- any reduction you asked for has been applied.
If something looks wrong, contact HMRC before the due date. Paying the amount you believe is right and querying the rest stops interest building on anything you do owe.