Payments on Account
Payments on account are advance payments towards your next tax bill, each equal to half of the previous year's liability. This guide explains how they work, when they are due, and how to manage them.
Payments on account are advance payments towards your self-assessment tax bill. HMRC requires them when your tax liability for the previous year was £1,000 or more and less than 80% of that liability was collected at source (through PAYE or other deductions).
Each payment on account is half of the previous year’s tax bill. You make two payments during the year, with any remaining balance settled through a balancing payment after the year ends.
When Payments on Account Are Due
The self-assessment tax year runs from 6 April to 5 April. For any given tax year, the payment schedule is:
| Payment | Due date | Amount |
|---|---|---|
| First payment on account | 31 January during the tax year | 50% of previous year’s liability |
| Second payment on account | 31 July after the tax year ends | 50% of previous year’s liability |
| Balancing payment | 31 January following the tax year end | Any remaining liability |
Example Timeline
For the 2025/26 tax year (6 April 2025 to 5 April 2026):
| Date | Payment | Based on |
|---|---|---|
| 31 January 2026 | First payment on account for 2025/26 | 50% of 2024/25 tax bill |
| 31 January 2026 | Balancing payment for 2024/25 | Remainder of 2024/25 liability |
| 31 July 2026 | Second payment on account for 2025/26 | 50% of 2024/25 tax bill |
| 31 January 2027 | Balancing payment for 2025/26 | Remainder of 2025/26 liability |
This means the 31 January deadline often involves two payments: the balancing payment for the year just ended and the first payment on account for the current year.
How Payments on Account Are Calculated
The calculation is based on your total self-assessment liability for the previous year, minus any amounts collected at source. Only the following taxes are included:
- Income Tax not collected through PAYE
- Class 4 National Insurance for self-employed individuals
- Student loan repayments collected through self-assessment (in some cases)
Capital Gains Tax is not included in payments on account. It is paid separately through the balancing payment.
Calculation Example
A self-employed sole trader has a 2024/25 tax liability of £8,000 after deducting PAYE already collected:
| Component | Amount |
|---|---|
| Total 2024/25 self-assessment liability | £8,000 |
| First payment on account for 2025/26 (due 31 Jan 2026) | £4,000 |
| Second payment on account for 2025/26 (due 31 Jul 2026) | £4,000 |
| Total payments on account | £8,000 |
If the actual 2025/26 liability turns out to be £9,500, the balancing payment due on 31 January 2027 would be £1,500.
If the actual 2025/26 liability turns out to be only £6,000, HMRC would refund £2,000 after the return is filed.
Who Has to Make Payments on Account
You must make payments on account if both of the following apply:
- Your self-assessment tax bill for the previous year was £1,000 or more
- Less than 80% of your total tax liability was deducted at source
This typically applies to:
- Self-employed sole traders and partners
- Company directors with significant dividend income
- Landlords with rental income
- Anyone with untaxed investment income above a certain level
You do not need to make payments on account if:
- Your previous year’s tax bill was below £1,000
- More than 80% of your tax was collected through PAYE
- This is your first year of self-assessment (no previous year to base the calculation on)
Reducing Payments on Account
If you expect your income to be lower than the previous year, you can apply to reduce your payments on account. This is done through your HMRC online account or by writing to HMRC.
When to Consider Reducing
- You have lost a client or contract and expect lower self-employment income
- You have stopped receiving rental income (e.g. sold a property)
- Your dividend income has dropped because the company is retaining profits
- You have started a PAYE job that will collect most of your tax at source
Risks of Reducing
HMRC charges interest on any shortfall if you reduce your payments on account below the correct amount. The interest runs from the original due date, so underpaying carries a cost.
You are not penalised for reducing in good faith, but HMRC may challenge a reduction that appears unreasonable. It is sensible to keep a record of the basis for your estimate.
Late Payment
Missing a payment on account triggers interest from the due date, calculated daily at the HMRC late payment interest rate (currently linked to the Bank of England base rate plus 2.5%).
Penalties may also apply if payments remain outstanding:
| Period overdue | Penalty |
|---|---|
| 30 days | 5% of the unpaid amount |
| 6 months | A further 5% |
| 12 months | A further 5% |
These penalties apply to the balancing payment rather than to payments on account directly, but unpaid payments on account increase the balancing payment and therefore the penalty exposure.
Managing Payments on Account
Budget Throughout the Year
Set aside a fixed percentage of your income each month into a separate savings account to cover tax payments. For a basic-rate taxpayer with self-employment income, budgeting 25-30% of profits is a reasonable rule of thumb.
Use Your HMRC Online Account
Your HMRC account shows:
- What payments on account are due and when
- Your previous year’s tax liability
- Any balancing payment or refund after filing your return
- The option to reduce payments on account online
File Your Return Early
Filing your self-assessment return early (you can file from 6 April) gives you a clear picture of any balancing payment due on 31 January. It does not change the payment deadline, but it removes the uncertainty.
Consider a Time to Pay Arrangement
If you cannot afford a payment on account when it falls due, contact HMRC before the deadline to request a Time to Pay arrangement. This allows you to spread the payment over instalments and avoids the 5% late payment penalty (though interest still accrues).
Payments on Account for Partners
Partners in a business partnership are assessed individually. Each partner’s share of the partnership profit is included in their personal self-assessment , and payments on account are calculated based on each partner’s total tax liability — not the partnership’s.
First Year of Self-Assessment
In your first year, there is no previous year’s liability to base payments on account on. This means no payments on account are due. However, the following January you will face a double hit: the full balancing payment for the first year plus the first payment on account for the second year. Planning for this is essential.