UK Self Assessment From Scratch — Part 6: Payments on Account Explained

Quick answer

If your Self Assessment tax bill exceeds £1,000 in a year, HMRC requires you to make advance instalments toward the next year's tax — called payments on account.

Each instalment is 50% of last year's tax, with payment dates:

• 31 January (alongside last year's balancing payment).
• 31 July (the "summer payment").

So a self-employed person who paid £6,000 of tax for 2024/25 will be asked, on 31 January 2026, to pay:

• £6,000 balancing payment (for 2024/25).
• £3,000 first payment on account (for 2025/26).
• Total: £9,000 on 31 January 2026.
• Then £3,000 on 31 July 2026.

If 2025/26 actual tax turns out to be £6,000 again, the £6,000 paid in advance covers it. No further balancing payment in January 2027 — just the next year's advances begin.

This is Part 6 of 8 in our Self-Assessment From Scratch series.

Why payments on account exist

HMRC's logic: if you owe more than £1,000 a year from non-PAYE sources, you should be paying it through the year, like PAYE employees do. Instead of waiting until January, HMRC asks for half on 31 July of the year it relates to and half on 31 January.

The system favours HMRC's cashflow (they get the money earlier) and roughly matches the cashflow of self-employed people earning evenly through the year.

Who has to make them

The conditions, both must be true:

1. Your Self Assessment tax bill for the prior year was over £1,000.
2. PAYE on your other income didn't cover at least 80% of your total tax.

So a self-employed person owing £6,000 of tax (with no PAYE) clearly applies. A PAYE employee with £900 of extra dividend tax doesn't (under £1,000). A PAYE employee earning £100k with £4k of side-business profit might just slip in — if the side-business tax (£1,600) is more than 20% of total tax.

Not covered by payments on account

• Class 4 NI — paid separately as part of the January balance.
• Student loan — paid separately as part of the January balance.
• Capital Gains Tax — paid separately (and for residential property, within 60 days of disposal).
• High Income Child Benefit Charge — paid as part of the January balance.

So the payments-on-account system covers income tax only, even though the rest of your Self Assessment bill is due on the same January date.

The first-January-surprise

The first time you're hit with payments on account is brutal. Sarah, newly self-employed in 2024/25:

• 2024/25 tax bill: £6,000.
• 31 January 2026 she pays:
  • £6,000 balancing payment for 2024/25.
  • £3,000 first payment on account for 2025/26.
  • Total: £9,000.

A year later (2025/26 income similar):

• 2025/26 tax bill: £6,000.
• Already paid £6,000 via payments on account.
• 31 January 2027 she pays:
  • £0 balancing payment (advance payments covered it).
  • £3,000 first payment on account for 2026/27.
  • Total: £3,000.

The system smooths out, but year 1 is uncomfortable. Plan for it.

Worked example — Mark, self-employed contractor

Mark's tax history:

The January 2027 bill breakdown:

• Balancing payment for 2025/26: tax £7,200 less £6,000 already paid = £1,200.
• First payment on account for 2026/27: 50% of £7,200 = £3,600.
• Total: £4,800.

Each year, the gap between actual tax and what was prepaid widens slightly because profits grew. If profits drop, balancing payment can be negative (refund) and you can request reduced payments on account going forward.

Reducing payments on account

If you reasonably expect this year's tax to be lower than last year (lower profits, retirement, taking a sabbatical), you can request reduced payments on account via:

1. Online — log into Government Gateway, "Reduce my payments on account".
2. Form SA303 — paper.
3. Phone HMRC Self Assessment helpline (0300 200 3310).

Worked example — Lisa reducing payments

Lisa's tax history:

• 2024/25 tax: £8,000.
• January 2026: pays £8,000 balancing + £4,000 first payment on account = £12,000.
• April 2026: she decides to wind down her business; expects 2025/26 tax to be only £3,000.
• She requests her July 2026 payment reduced to £0 (since she's already paid £4,000 against an expected £3,000 liability).

Worst case — Lisa was wrong and 2025/26 tax was actually £5,000 (not £3,000). She'd paid £4,000 + £0 = £4,000 in advance. She owes £1,000 more, plus interest at 7.5% on the £1,000 from when each instalment should have been paid.

The interest charge isn't punitive — it's the cost of overestimating. If you genuinely don't know, you can be conservative and reduce less, or leave the standard amount and get a balancing refund.

Don't apply rules

You don't make payments on account if any of these apply:

• Previous year's SA tax was under £1,000.
• PAYE on your other income covered at least 80% of your total tax.
• You're in Self Assessment for HICBC only (treated separately).
• It's your first year of Self Assessment — no prior-year tax to use as basis.

The "first year exemption" sometimes catches people out — they assume HMRC will request payments on account from year one. Instead, year one is a single balance only. Year two is where the doubling happens.

When payments on account don't cover everything

The payment on account system assumes income is broadly similar year-on-year. When income spikes or drops, the system breaks down:

• Big income spike — you pay normal payments on account, then a big balancing payment in January for the excess.
• Big income drop — your payments on account are too high; you get a balancing refund or can request reduction.
• One-off transaction (large CGT disposal, sale of business) — covered separately, not part of payments on account.

The 31 July reminder

Many people forget the July payment. HMRC sends a Statement of Account in early July, but it's easy to miss. Set a calendar reminder.

Late payment of the July instalment triggers:

• Daily interest at 7.5%.
• No automatic penalty for being 1 day late (unlike the January filing penalty).
• 5% surcharge if 30 days late.

Time to Pay arrangements are also available for July instalments if you're genuinely short of cash.

How to pay

Same as other Self Assessment payments:

• Bank transfer / Faster Payment to HMRC's collection account (fastest).
• Direct Debit (set up 5+ working days before deadline).
• Debit card via gov.uk (no fee).
• HMRC app.
• Online banking via Open Banking link from your HMRC account.

Use your UTR + the letter K as reference (e.g. 1234567890K). The K tells HMRC the payment is for Self Assessment.

Time to Pay if you can't afford it

If the January or July payment is more than you can comfortably afford, HMRC offers Time to Pay instalment plans:

• Online setup for amounts under £30,000 — typically 6-12 monthly instalments.
• Phone for larger amounts.
• 7.5% interest still accrues.
• No late-payment penalties if Time to Pay is agreed before the deadline.

This is much better than missing the deadline and copping the 5% surcharge.

Common errors

1. Underestimating January bill because of first-year effect. Always plan for 1.5× normal in year 1.
2. Treating July as optional because there's no return to file then. It's a real payment.
3. Reducing too aggressively to manage cashflow, then owing interest later.
4. Not realising income tax + Class 4 NI + student loan are all due at once in January, but only income tax is part of payments on account.
5. Forgetting CGT — payments on account don't cover CGT, which is a separate January balancing item.

What if you stop self-employment?

You can end your obligation to make payments on account by:

1. Closing your business and notifying HMRC.
2. Filing Self Assessment for the closing year.
3. Telling HMRC you no longer need to file Self Assessment going forward.

Payments on account for the next year become payable but can be reduced to zero (since no tax expected).

Try the numbers

For overall take-home modelling:

Coming next

• Part 7: Making Tax Digital — what's changing in 2026 and beyond
• Part 8: After you file — refunds, audits, amendments

Sources

• HMRC: Pay your Self Assessment tax bill
• HMRC: Self Assessment payments on account
• HMRC: Reduce your payments on account
• HMRC: If you cannot pay your tax bill on time
• HMRC: Interest rates for late payments