If you have recently started filing personal tax returns, you will soon learn about ‘payments on account’ – which can come as a shock if you’re new to Self Assessment.
Payments on account are part of HMRC’s Self Assessment process and mean you pay next year’s income tax in advance, in two equal instalments (by 31 January and 31 July), based on what you owed on your last tax return.
Payments on account can also include Class 4 National Insurance contributions if you’re self-employed.
How payments on account work
If your income tax liability for the 2025/26 tax year was £20,000, you must fully settle this liability by 31 January 2027.
Unless you inform them otherwise (see below), HMRC presumes you will owe a similar amount for the current tax year (2026/27).
As a result, you need to make payments on account of this presumed future tax liability, with the first instalment due at the same time as your original tax payment.
So, in this example, an extra £10,000 is due on 31 January 2027, bringing your total payment on that date to £30,000.
The second payment of £10,000 is due by 31 July 2027.
| Payment | Deadline | Amount |
|---|---|---|
| 2025/26 income tax liability | 31 January 2027 | £20,000 |
| First payment on account for 2026/27 | 31 January 2027 | £10,000 |
| Second payment on account for 2026/27 | 31 July 2027 | £10,000 |
| Total paid | £40,000 |
We recommend you budget for these initial payments in advance once you become self-employed or a company director.
However, once you have completed the first annual cycle of payments on account, you’ll have paid much of your next tax bill in advance, and the following tax year won’t hide any unwelcome surprises.
What’s a balancing payment?
Your payments on account are based on your earnings for the previous income tax year. But if your earnings are higher, you must make a ‘balancing payment’.
So, if you owe £30,000 in income tax rather than £20,000 for 2026/27, despite already paying £20,000 in advance through payments on account, you must pay the extra £10,000 by 31 January 2028.
Your payments on account for 2027/28 will also increase to £30,000 in total, assuming your increased earnings continue into the next tax year.
In this example, your January 2028 payment would therefore be £25,000 – the £10,000 balancing payment plus the first £15,000 payment on account for 2027/28.
It can get pretty confusing, especially if you’re new to the world of Self Assessment!
If your earnings fall instead and you’ve already paid more than you owe, you can claim a refund or use it against other amounts due.
Exceptions – when payments on account aren’t required
You won’t need to make payments on account if:
- Your previous year’s relevant tax and Class 4 National Insurance liability, after deductions at source, was less than £1,000.
- At least 80% of your previous year’s tax liability was collected at source, for example through PAYE.
You may also have no payments on account to make if your previous Self Assessment return doesn’t produce a qualifying liability.
Note that Capital Gains Tax, student loan and postgraduate loan repayments are not included when calculating payments on account.
You generally deal with these as part of your balancing payment, along with any voluntary Class 2 National Insurance contributions due.
What if your tax bill is likely to be lower than last year?
As every limited company owner knows, earnings can fluctuate from year to year, and it’s not always easy to predict how your business will perform in the months ahead.
However, if you are pretty sure your income will take a hit next year, you can ask HMRC to reduce your payments on account.
- Simply log on to your HMRC account and view your latest Self Assessment return.
- You’ll be able to see your current tax status, including payments already made and payments due in the future.
- You can select the option to ‘Reduce payments on account’ or do this in writing using form SA303.
If you pay an accountant to process your tax return, they can do this for you.
Lowering your immediate tax burden this way can be tempting, but think it through carefully first.
After all, if your income is about the same or even higher in the new tax year, you’ll end up paying the tax anyway.
Remember that HMRC can charge you interest if you reduce your payments too far and subsequently underpay your tax. On the other hand, if you don’t reduce your payments on account and your tax bill is lower, you will get a refund or credit.
Putting money aside and paying your bill
You can set up a Direct Debit with HMRC for payments on account, or pay online using your bank account, debit card or bank transfer. You can also send a cheque by post.
You can no longer pay your Self Assessment bill at the Post Office, and payments at a bank or building society are restricted to taxpayers with the necessary HMRC paying-in slip.
See the full list of available Self Assessment payment methods.
If you prefer, you can also make regular payments towards your tax bill throughout the year rather than leaving everything until January and July.
Remember that if the deadline falls on a weekend or bank holiday, your payment must reach HMRC by the last working day beforehand, unless you’re using an eligible same-day payment method.
