Payments on account are advance payments towards your next Self Assessment tax bill. If your last bill was £1,000 or more, and less than 80% of your tax was collected at source through PAYE, HMRC asks for two advance payments, each equal to half of last year’s bill, due on 31 January and 31 July. Any balance is paid the following 31 January.
This is why many sole traders and landlords in their first or second year of trading face a much bigger January bill than they expected. This guide explains how payments on account work, what they include, how to reduce them if your income falls, and a worked example for 2026/27.
Table of Contents
How payments on account work
Self Assessment is designed so that you pay most of your tax during the tax year, not after it. For the 2026/27 tax year (6 April 2026 to 5 April 2027):
| Due date | Payment |
|---|---|
| 31 January 2027 | Balancing payment for 2025/26 plus first payment on account for 2026/27 |
| 31 July 2027 | Second payment on account for 2026/27 |
| 31 January 2028 | Balancing payment for 2026/27 plus first payment on account for 2027/28 |
Each payment on account is 50% of your previous year’s Self Assessment liability. When you file your 2026/27 return, the actual tax for the year is compared with the amounts already paid, and any difference is either paid as a balancing payment or refunded. The dates are the same as the Self Assessment deadline for filing.
Who has to make payments on account?
You must make these advance payments unless either of these applies:
- Your Self Assessment bill for the previous year was less than £1,000
- More than 80% of your total tax for the previous year was deducted at source, for example through your tax code or from bank interest
Employees who also have a small amount of rental or freelance income are often outside the system because most of their tax is collected through PAYE. People who have just registered as self-employed usually make their first advance payments after their first tax return.
What is included and what is not
Payments on account cover your income tax and Class 4 National Insurance. They do not include Capital Gains Tax or student loan repayments for the self-employed; these are paid in full in the balancing payment on 31 January.
Worked example: payments on account for 2026/27
This is an illustrative example, not a real client. A Bolton sole trader started trading in 2025/26. Their tax and Class 4 National Insurance for 2025/26 is £6,000, and they made no advance payments for that year because it was their first return.
| Due date | What is paid | Amount |
|---|---|---|
| 31 January 2027 | 2025/26 balancing payment | £6,000 |
| 31 January 2027 | First payment on account for 2026/27 (50% of £6,000) | £3,000 |
| Total due on 31 January 2027 | £9,000 | |
| 31 July 2027 | Second payment on account for 2026/27 | £3,000 |
If their 2026/27 tax turns out to be £7,500, they will have paid £6,000 on account, so the balancing payment on 31 January 2028 is £1,500. They will also pay the first payment on account for 2027/28 of £3,750 (50% of £7,500), a total of £5,250 that day.
The jump in the first January bill, from nothing to £9,000, is the most common shock for new businesses. Setting aside a percentage of each invoice or rent payment in a separate savings account avoids it. Our employed and self-employed tax calculator can help you estimate how much to put aside.
How to reduce your payments on account
Payments on account are based on last year’s figures, so if you expect your income to fall in 2026/27, you can ask HMRC to lower them. You might do this if trade has slowed, you have stopped letting a property or you have larger allowable expenses this year.
- Online: sign in to your HMRC account, open your latest return and choose “Reduce payments on account”
- By post: send form SA303 to HMRC
- In both cases you must state the amount you expect to owe and the reason
Be realistic. If you reduce them and your actual bill is higher, HMRC charges interest on the shortfall from the original due dates. Reducing them without a reasonable basis can also lead to a penalty. If your income is rising, there is no obligation to increase them, but the difference will fall into a larger balancing payment.
Payments on account and Making Tax Digital
Making Tax Digital for Income Tax changes how you keep records and report, not when you pay. Sole traders and landlords using MTD still pay in advance on 31 January and 31 July and a balancing payment the following January. The quarterly updates do, however, give you a much clearer view of your likely bill during the year, which makes it easier to decide whether to reduce them.
What if you cannot pay?
If you cannot pay an advance payment or balancing payment in full, still file your return on time and contact HMRC about a Time to Pay arrangement before the due date. Late payment interest runs from the due date, and late payment penalties apply to unpaid balancing payments. For more on the basics, see our payments on account glossary entry and landlord tax guide.
Frequently asked questions
Why is my first Self Assessment bill so high?
In your first year you usually pay the full tax for that year plus the first payment on account for the next year, both on 31 January. For a £6,000 bill, that means paying £9,000 in January.
Do I have to make payments on account if my tax bill is under £1,000?
No. If your previous year’s Self Assessment bill was less than £1,000, or more than 80% of your tax was collected at source, you do not need to make payments on account.
Are payments on account a penalty or extra tax?
No. They are advance payments towards your next tax bill. If you pay too much, the excess is set against your next bill or refunded.
Do payments on account include Capital Gains Tax?
No. Capital Gains Tax and student loan repayments for the self-employed are not included and are paid in full in the January balancing payment.
Can I reduce my payments on account?
Yes, online through your HMRC account or with form SA303, if you expect your tax bill to be lower. You will pay interest if you reduce them too far.
Get help with your payments on account
Cangaf’s ACCA-qualified team in Bolton prepares Self Assessment returns for sole traders and landlords, checks whether your advance payments can be reduced and plans your January and July bills in advance. See our Self Assessment service, call 01204 859315, email [email protected] or request a fixed-fee quote; the fee is agreed upfront.
Official guidance: payments on account, claim to reduce payments on account (SA303) and if you cannot pay your tax bill on time (GOV.UK).
