Answers · UK 2025/26

What are Self Assessment payments on account and how are they calculated?

Payments on account are advance payments toward your NEXT tax year's Self Assessment bill, each equal to 50% of your previous year's tax liability, due by 31 January and 31 July. They apply if your last Self Assessment bill was over £1,000 and less than 80% of your tax was collected at source -- if your income drops, you can apply to reduce them.

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Payments on account often catch first-time Self Assessment filers by surprise, since the amount actually due on 31 January can be significantly more than simply the tax owed for the previous tax year. **When payments on account apply** You are generally required to make payments on account if your Self Assessment tax bill for the previous year was more than £1,000, AND less than 80% of your total tax liability was already collected through other means (such as PAYE tax deducted at source) -- this typically catches the self-employed, those with significant rental or investment income, and higher earners with complex income sources. **How the amounts are calculated** Each payment on account is set at 50% of your PREVIOUS year's total Self Assessment tax liability (excluding Capital Gains Tax and Class 2 National Insurance, which are generally not included in the payments on account calculation) -- so if your prior year bill was £6,000, each payment on account is £3,000, due by 31 January and 31 July. **The confusing first-year "double payment"** The reason payments on account often shock first-time filers is that the 31 January deadline typically requires THREE amounts at once: the balance of tax owed for the year just ended (the "balancing payment"), PLUS the first payment on account for the CURRENT tax year (which has not even finished yet) -- meaning your first Self Assessment tax bill can be roughly 150% of your actual liability for that single year, since you are effectively paying for two periods at once. **Worked example of the calculation** Someone owes £5,000 tax for the 2025/26 tax year. By 31 January 2027 (the Self Assessment deadline for that year), they must pay: the £5,000 balancing payment for 2025/26, PLUS a £2,500 first payment on account for 2026/27 (50% of the £5,000 prior year liability) -- a total of £7,500 due on that single date. A further £2,500 second payment on account for 2026/27 is then due by 31 July 2027. **Reconciliation the following January** When you eventually file your return for 2026/27, if your actual liability turns out to be higher than the £5,000 in payments on account already made, you pay the balancing amount by the following 31 January (along with the first payment on account for the year after that); if lower, you receive credit or a refund for the overpayment. **Reducing payments on account if income falls** If you know or reasonably expect your income (and therefore tax liability) for the current year will be lower than the previous year -- perhaps due to reduced self-employment profits, ceasing a source of income, or a specific known change -- you can apply to HMRC to reduce your payments on account, avoiding the cash-flow strain of paying based on a higher prior year figure. However, if you reduce them too far and your actual liability turns out higher than expected, HMRC will charge interest on the shortfall. **Why this matters for cash flow planning** Self-employed people and others subject to payments on account need to budget carefully throughout the year for these advance payments, since underestimating the cumulative cash requirement (balancing payment plus payment on account, potentially twice a year) is one of the most common causes of Self Assessment payment difficulties and subsequent Time to Pay arrangements. **Practical tip** Set aside a portion of self-employment income throughout the year specifically for tax (many advisers suggest 25-30% depending on your tax band), and if your income has genuinely fallen compared with the previous year, proactively apply to reduce your payments on account rather than paying based on an outdated, higher figure and having to wait for a refund later.