Payments on Account in 2026: How They Work and How to Plan for Them

If you're self-employed, a landlord or have other untaxed income, your Self Assessment bill usually comes in three parts: a balancing payment and two payments on account. They catch out almost everyone in their first year, because the first January bill can be about one and a half times a year's tax. This guide explains who has to make payments on account in 2026, the £1,000 and 80% tests, the 31 January and 31 July dates, how the balancing payment works, when and how to reduce them with SA303, and what it costs if you get it wrong, with worked examples in pounds.

Quick answer

Payments on account are two advance payments towards next year's Self Assessment bill, each half of last year's Income Tax and Class 4 NIC. They're due by 31 January and 31 July. You don't have to make them if last year's Self Assessment bill was under £1,000, or if more than 80% of your tax was collected at source.

• Any shortfall is a balancing payment, due the following 31 January

• First year: last year's full bill plus the first payment on account land together on 31 January

• Reduce them online or with form SA303 if this year's tax will be lower

• Paying late or reducing too far costs interest at 7.75% (base rate plus 4%)

What payments on account are

HMRC collects Self Assessment tax partly in advance. For each tax year, which runs from 6 April to 5 April, you make two payments on account during and just after the year, then settle the rest once your return is filed. Each payment on account is normally half of the tax you owed through Self Assessment for the previous year. That figure covers Income Tax and, if you're self-employed, Class 4 National Insurance.

Take the 2026-27 tax year. The first payment on account is due by midnight on 31 January 2027 and the second by 31 July 2027. Both are based on your 2025-26 bill. Once you file your 2026-27 return, any tax still owed is the balancing payment, due by 31 January 2028. That same day, the first payment on account for 2027-28 is also due.

What's left out matters. Capital Gains Tax and student loan repayments collected through Self Assessment aren't included in payments on account. They're paid in full with the balancing payment. A big one-off gain doesn't push up next year's payments on account, but it does make that January's balancing payment larger.

The Self Assessment payment cycle (2026-27 tax year)

6 April 2026

2026-27 tax year starts

31 January 2027

Balancing payment for 2025-26 + 1st payment on account for 2026-27

5 April 2027

2026-27 tax year ends

31 July 2027

2nd payment on account for 2026-27

31 January 2028

File 2026-27 return; balancing payment for 2026-27 + 1st payment on account for 2027-28

Who has to make payments on account: the £1,000 and 80% tests

You must make payments on account unless either of these applies to the previous year:

1. The £1,000 test. The tax you owed through Self Assessment was less than £1,000.
2. The 80% test. More than 80% of all the tax you owed was paid outside Self Assessment, for example through your PAYE tax code as an employee or pensioner, or deducted at source from income such as savings interest.

HMRC applies these tests automatically when your return is processed. Your online account and Self Assessment statement then show whether payments on account are due and how much they are.

Example: under £1,000. Tom is a sole trader with a small side business. His 2025-26 Self Assessment bill is £950. That's below £1,000, so he pays £950 by 31 January 2027 and nothing in advance for 2026-27. If his 2026-27 bill rises to £1,400, he pays it all on 31 January 2028, along with a first payment on account of £700 for 2027-28.

Example: the 80% test. Aisha is an employee who also rents out a flat. In 2025-26 her total Income Tax is £10,800. Of that, £9,000 is deducted through PAYE and £1,800 is due through Self Assessment on the rental profit. Her Self Assessment bill is over £1,000, but 83% of her tax was paid at source, which is more than 80%. So she doesn't make payments on account and pays the £1,800 by 31 January 2027.

Small bills can sometimes be collected through your tax code instead. If you're an employee or pensioner, owe less than £3,000 and file online by 30 December, HMRC will normally collect the balance through your PAYE code over the next tax year, unless you opt out on your return.

How payments on account are calculated

The calculation is simple. Take last year's Income Tax and Class 4 NIC due through Self Assessment, after tax already deducted at source, and halve it. That's each payment on account. HMRC uses last year's bill because it's the best figure it has; it doesn't adjust for what you're earning now unless you ask it to.

HMRC's own example: your 2023-24 bill was £3,000. Based on 2022-23, you had paid two payments on account of £900 each, so £1,800. On 31 January 2025 you owed a balancing payment of £1,200 (£3,000 − £1,800) plus a first payment on account of £1,500 (half of £3,000) for 2024-25, which is £2,700 in total. Then you paid a second £1,500 on 31 July 2025. If your 2024-25 bill came to more than £3,000, you'd pay the extra as a balancing payment on 31 January 2026.

If the bill comes in lower than your payments on account, you've overpaid. HMRC credits the overpayment to your Self Assessment account. You can leave it there to cover the next payment or claim a refund. Our HMRC tax refund guide covers how refunds are paid.

The first-year double hit: a worked example

The first January after you start out is when payments on account hurt most. You haven't made any payments on account yet, so on the same day you pay the whole of last year's bill and the first payment on account for the current year.

Sam started as a self-employed electrician on 6 April 2025 and has no other income. His 2025-26 profit is £40,000. Using 2025-26 rates:

What Sam pays and when

£10,697.70

Due 31 January 2027

£7,131.80 bill + £3,565.90 1st payment on account

£3,565.90

Due 31 July 2027

2nd payment on account

£14,263.60

Paid within six months

2× one year's tax

Sam pays two years' worth of tax within six months: £10,697.70 in January and £3,565.90 in July. That's not a penalty and it isn't extra tax. The 2026-27 payments on account count towards his 2026-27 bill. But it's a cash shock if he hasn't been saving since his first invoice. If his 2026-27 profit is the same, his 2026-27 balancing payment on 31 January 2028 will be zero and he'll pay only the first 2027-28 payment on account, £3,565.90. From then on, payments settle into a steady rhythm.

The practical fix is to set aside part of every payment you receive. A basic-rate sole trader paying Income Tax and Class 4 NIC on profits above the allowance typically needs about 20–25% of profit. Higher earners need more. Our self-employed tax guide shows the full calculation, including higher-rate tax above £50,270.

Reducing payments on account with SA303

If you know this year's tax will be lower than last year's, you can ask HMRC to reduce your payments on account. HMRC's form lists three reasons: business profits or other income going down, tax relief going up (larger pension contributions, for example), or more tax deducted at source than last year. A one-off item in last year's figures, such as a large gain from selling a business asset, is another common reason.

You can do it two ways:

• Online: sign in to your HMRC online account, open your latest Self Assessment return and choose Reduce payments on account.
• By post: fill in form SA303 and send it to HMRC.

Either way, you give your expected income for the year and HMRC recalculates the payments. You can claim up to 31 January after the tax year ends. If you've already paid more than the reduced amount, HMRC will refund or credit the difference.

Example: a genuine fall in profit. Sam's work drops off in 2026-27 and he expects a profit of about £30,000. On 2025-26 rates his tax would be (£30,000 − £12,570) × 26% (20% Income Tax plus 6% Class 4) = £4,531.80. Without action, his payments on account stay at £3,565.90 each, £7,131.80 in total, and he overpays by £2,600. If he applies to reduce them before 31 January 2027, each payment drops to about £2,265.90 and he keeps £2,600 of cash during the year.

The interest risk of reducing too far

Reducing payments on account is your estimate, and HMRC doesn't check it when you apply. If your actual bill turns out higher than the reduced payments, HMRC charges late payment interest on the difference from each original due date until you pay. The rate is the Bank of England base rate plus 4%. It's been 7.75% since 9 January 2026 on HMRC's published table, and it changes whenever the base rate changes.

Example: reducing to zero by mistake. Suppose Sam expects a poor year and cuts his 2026-27 payments on account to nil, but his profit holds at £40,000 and his bill is £7,131.80 again. The payments on account he should have made were £3,565.90 on 31 January 2027 and £3,565.90 on 31 July 2027. If he pays everything on 31 January 2028, interest at 7.75% is roughly:

• £3,565.90 × 7.75% × 12 months ≈ £276
• £3,565.90 × 7.75% × 6 months ≈ £139

That's about £415 of interest, on top of the whole £7,131.80 falling due in one go. Interest is charged only on the shortfall up to the amount that should have been paid, and only from the original dates, but it's real money. Reduce based on records you can back up, such as management accounts or year-to-date figures, not on hope.

How to pay and what happens if you're late

You can pay online through your HMRC account or the HMRC app, by bank transfer (Faster Payments, Bacs or CHAPS), by debit or corporate credit card, by Direct Debit, or at your bank with an HMRC paying-in slip. Faster Payments and card payments arrive the same or next day. Bacs and an existing Direct Debit take three working days, and a new Direct Debit takes five. Use your 11-character reference: your 10-digit UTR followed by K. If the deadline falls on a weekend or bank holiday, make sure the payment reaches HMRC on the last working day before, unless you're paying by Faster Payments or card. You can no longer pay at the Post Office.

To smooth the cash flow, you can set up a Budget Payment Plan: weekly or monthly Direct Debits towards your next bill, which you can pause for up to six months. You have to be up to date with your previous bill to use it.

If a payment on account is late, HMRC charges interest from the day after the due date. The 5% late payment penalties in Self Assessment are charged on tax still unpaid 30 days after the 31 January balancing date (then again at six and 12 months), not on a late payment on account by itself. In practice, a missed July payment that's still unpaid the following February can end up inside a penalty. If you can't pay, contact HMRC early about a Time to Pay arrangement. HMRC has an online checker to see whether you can set up a payment plan yourself.

Payments on account and Making Tax Digital

From 6 April 2026, sole traders and landlords with qualifying income over £50,000 must use Making Tax Digital for Income Tax. That means digital records and quarterly updates through software. Payment dates don't change: payments on account are still due on 31 January and 31 July, and the balancing payment on 31 January.

What does change for MTD users is where payments show up. The Association of Taxation Technicians reported in July 2026 that HMRC is holding 2025-26 payments on account and later years in the new MTD account, while older balances stay in the existing Self Assessment account. Paper statements may show 2025-26 payments on account as "transferred to digital". If you're in MTD, check both accounts before paying so the money goes to the right year. Our Making Tax Digital guide explains who's in scope and when.

Quarterly updates also give you a running estimate of your profit. That makes it easier to judge whether to reduce payments on account, or to pay extra if you're heading for a bigger bill.

Your payments on account calendar

0/5

• Every invoice: move 20–30% of profit into a separate tax account
• Before 31 January: file your return, check the balancing payment and 1st payment on account, and decide whether to reduce
• Mid-July: set a reminder and pay the 2nd payment on account by 31 July
• If profits change mid-year: reduce with evidence, or pay extra early to cut interest
• MTD users: check both the Self Assessment and MTD accounts before paying

Share Print

Common mistakes

Not budgeting for the first January. It's the biggest single shock for new sole traders. Start a separate tax savings account on day one.

Forgetting July. The second payment on account has no return attached, so it's easy to miss. Set a reminder for mid-July.

Reducing without evidence. An optimistic SA303 just moves the bill and adds interest. Base the claim on real figures.

Assuming a refund means no payment. If your payments on account were too high, HMRC usually credits your account, and the credit may be used against the next payment on account rather than paid out unless you ask.

Ignoring the 80% test when circumstances change. If you leave employment and go fully self-employed, the PAYE share of your tax falls, and payments on account may start the following year even though they never applied before.

Official links

• Payments on account (GOV.UK)Rules, tests, examples and how to reduce
• SA303 — claim to reduce payments on accountOnline service or postal form
• Pay your Self Assessment tax billWays to pay, Budget Payment Plan, tax code collection
• HMRC interest ratesCurrent late payment and repayment interest
• Self Assessment deadlinesFiling and payment dates

What to do next

Sign in to your HMRC online account and check what's due on 31 January and 31 July. If this year is clearly lower, reduce your payments on account with evidence. If it's higher, consider paying extra early. Then work out a monthly savings figure using our budget planner, and read the Self Assessment guide for filing deadlines and penalties.

This is general information, not legal or tax advice — confirm on the official source or with a professional.

Frequently asked questions

What are payments on account?

Advance payments towards next year's Self Assessment bill. Each one is usually half of last year's Income Tax and Class 4 National Insurance due through Self Assessment. The first is due by midnight on 31 January and the second by 31 July. Any shortfall is paid as a balancing payment the following 31 January; any overpayment is refunded or credited.

Do I have to make payments on account?

Yes, unless last year's Self Assessment tax bill was under £1,000, or more than 80% of all the tax you owed was collected at source, for example through PAYE or tax deducted from savings. Your online account and Self Assessment statement show whether you need to make them and how much they are.

Why is my first Self Assessment bill so high?

Because in your first year you pay the whole of last year's bill and the first payment on account for the current year on the same date, 31 January: about 150% of one year's tax. The second payment on account follows on 31 July. Setting aside 25–30% of profit from your first invoice is the simplest way to be ready.

Can I reduce my payments on account?

Yes, if you expect this year's tax to be lower, for example because profits fell or more tax was deducted at source. Use the 'Reduce payments on account' option in your HMRC online account or send form SA303 by post, giving your expected income. If you reduce too far, HMRC charges interest on the difference from the original due dates.

What happens if I miss a payment on account?

HMRC charges late payment interest, currently 7.75% (base rate plus 4%), from the day after the due date until you pay. The 5% late payment penalties are charged on tax still unpaid 30 days after the 31 January balancing date, not on a late payment on account by itself. If you can't pay, ask HMRC about a Time to Pay arrangement.

Do payments on account include capital gains tax or student loans?

No. Payments on account cover Income Tax and Class 4 National Insurance only. Capital Gains Tax and student loan repayments due through Self Assessment are paid in full as part of the balancing payment by 31 January after the tax year ends, and aren't counted when HMRC works out your payments on account.

Sources & verification

Figures on this page were checked against the sources below when it was last reviewed on 8 October 2026. Each rate and limit is stored once with its own official source and review date, and official update channels are monitored daily so changes are picked up. How we verify

1. 1.Understand your Self Assessment tax bill: payments on account — HMRC / GOV.UK · accessed 8 October 2026
2. 2.Self Assessment: claim to reduce payments on account (SA303) — HMRC / GOV.UK · accessed 8 October 2026
3. 3.Pay your Self Assessment tax bill — HMRC / GOV.UK · accessed 8 October 2026
4. 4.HMRC interest rates for late and early payments — HMRC / GOV.UK · accessed 8 October 2026
5. 5.Self Assessment legal framework manual SALF308a: late payment penalties — HMRC · accessed 8 October 2026
6. 6.Self Assessment tax returns: deadlines — HMRC / GOV.UK · accessed 8 October 2026
7. 7.Check if you're eligible for Making Tax Digital for Income Tax — HMRC / GOV.UK · accessed 8 October 2026
8. 8.Making Tax Digital for Income Tax: payments on account update — Association of Taxation Technicians · accessed 8 October 2026