What are payments on account for self assessment? A complete guide for UK taxpayers
Payments on account are advance payments towards your next Self Assessment tax bill. If your Self Assessment tax liability exceeds £1,000 and less than 80% of your tax is collected at source, HMRC will ask you to make two advance payments each year — one by 31 January and another by 31 July. This guide explains exactly how they work, who needs to pay, and how a qualified accountant can help you avoid surprises.
Payments on account are HMRC's way of collecting Income Tax and Class 4 National Insurance contributions in advance. Instead of waiting until the end of the following tax year, HMRC asks certain taxpayers to make advance payments towards their next Self Assessment tax bill. These payments are then credited against your future tax liability.
Each payment on account is normally set at 50% of your previous year's Income Tax and Class 4 National Insurance bill. So if your 2025/26 tax bill was £4,000, HMRC would expect two payments on account of £2,000 each towards your 2026/27 bill.
The system can catch people off guard — particularly if they are newly self-employed, a landlord receiving rental income for the first time, or a company director with dividends. But understanding how payments on account work can help you budget and avoid a shock when the deadlines arrive.
You will generally need to make payments on account if your previous year's Self Assessment tax bill was more than £1,000 — unless more than 80% of your tax was already collected at source through PAYE.
This typically applies if you are:
Many sole traders, landlords, and company directors encounter payments on account for the first time after filing their first Self Assessment tax return — and the extra payment can come as an unwelcome surprise.
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There are normally two payments on account each year, with fixed deadlines set by HMRC:
| Payment | Due Date | Amount |
|---|---|---|
| First Payment on Account | 31 January | 50% of previous year's tax bill |
| Second Payment on Account | 31 July | 50% of previous year's tax bill |
If after both payments on account have been made there is still tax outstanding, a balancing payment will be due on the following 31 January.
Suppose your Self Assessment tax bill for 2025/26 is £4,000. HMRC will calculate your payments on account as follows:
First Payment on Account
£2,000Due 31 January
Second Payment on Account
£2,000Due 31 July
Total Advance Payments
£4,000Credited towards your 2026/27 tax bill
Many taxpayers are genuinely shocked when they receive their first payment on account demand. This is because they are often paying their current year's tax bill plus the first payment towards next year's bill all at once.
Here is what the January payment can look like:
This is exactly why understanding payments on account before you file your return is so important. A qualified accountant can help you anticipate these costs and plan ahead.
Sometimes — yes. Company directors may have payments on account if they receive income that is not taxed through PAYE, such as dividends, rental income, foreign income, or significant investment income.
Directors with significant dividend income often encounter payments on account for the first time after filing their Self Assessment return, particularly if their company is profitable and they regularly draw dividends above the dividend allowance.
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Yes, many sole traders do. Because tax is not deducted at source from self-employed profits, HMRC commonly requires sole traders to make payments on account.
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Yes — if you genuinely expect your next year's tax bill to be lower, you can apply to HMRC to reduce your payments on account.
Common reasons for requesting a reduction include:
Important: If you reduce your payments on account too much and HMRC later determines more tax was due, they may charge interest on the shortfall. A qualified accountant can help assess whether a reduction is appropriate — and how much to reduce.
If payments on account are not paid by the deadline, HMRC may take enforcement action. The consequences can escalate quickly:
The longer a payment remains outstanding, the more expensive it becomes. For this reason, many experienced taxpayers and their accountants set aside money throughout the year to prepare for their tax obligations.
Payments on account can create significant cash flow challenges, particularly for new businesses, sole traders, landlords, seasonal businesses, and freelancers whose income may vary from month to month.
Many people mistakenly assume their January tax payment covers everything — only to discover another payment is due in July. This is one of the most common reasons people reach out to an accountant for the first time.
Good tax planning — including setting aside a percentage of income each month — can help you avoid these surprises and maintain healthy cash flow.
A qualified accountant can help you navigate payments on account by:
Accurate projections so you know what is coming
Plan your finances around tax deadlines
Avoid the January surprise that catches so many out
Determine whether you can reduce payments and by how much
👉 Learn more about: Online Self Assessment Tax Return Services
Many taxpayers make avoidable mistakes with their payments on account, including:
Good record keeping and professional advice from an experienced accountant can help you avoid all of these issues.
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Sarah is a self-employed graphic designer. Her 2025/26 Self Assessment tax bill is £3,600. HMRC calculates her payments on account as follows:
First Payment on Account
£1,800Second Payment on Account
£1,800On 31 January she must pay:
This is why understanding payments on account is so important when becoming self-employed. An accountant can help you calculate these figures well in advance so there are no unpleasant surprises.
Payments on account are advance payments towards your next year's Self Assessment tax bill. HMRC asks certain taxpayers to make two advance payments each year — each equal to 50% of the previous year's tax liability — credited towards the following year's tax bill.
Generally, taxpayers with a Self Assessment tax bill over £1,000 where less than 80% of tax has been collected at source through PAYE. This typically includes sole traders, landlords, company directors with dividends, and those with untaxed income.
There are normally two payments on account each year — one due by 31 January and the second by 31 July. If tax remains outstanding after these, a balancing payment is also due by the following 31 January.
The first payment on account is due on 31 January (alongside any balancing payment for the previous year). The second payment on account is due on 31 July.
Yes. If you genuinely expect your next year's tax liability to be lower, you can apply to HMRC to reduce your payments on account. However, if you reduce them too much and more tax turns out to be due, HMRC will charge interest on the shortfall.
HMRC may charge interest on late payments from the due date and impose late payment penalties: 5% of the unpaid tax at 30 days, 6 months, and 12 months. They may also take further collection action.
Many taxpayers are surprised when they first encounter payments on account. At Taxwise Accountancy, we help sole traders, landlords, freelancers, contractors, company directors, and investors understand their Self Assessment obligations, forecast future liabilities, and avoid unexpected tax bills.
Whether you need help preparing your Self Assessment tax return, understanding your payments on account, or reducing an HMRC payment demand — our experienced accountants can guide you through every step.