Pillar Guide · Updated June 2026

Payments on Account UK 2026/27: How They Work

Payments on account are the part of Self Assessment that catches out almost every newly self-employed person. They are advance instalments towards next year tax bill, paid in two halves on 31 January and 31 July, and in your first year they pile on top of the tax you already owe to create a punishing double bill. This guide explains exactly how they are calculated for 2026/27, who has to pay them, when the deadlines fall, how to reduce them safely, and how interest is charged so you are never caught out.

Last updated: 7 June 2026Last reviewed: 7 June 2026How we verify

What Payments on Account Are

A payment on account is an advance instalment towards your next Self Assessment bill. Rather than waiting for you to file a return and then pay a whole year of tax at once, HMRC asks you to pay towards the coming year in two equal halves, based on the assumption that next year liability will be much like last year. Each instalment is 50% of your previous year income tax and Class 4 National Insurance.

Because it is only an estimate, the figure is trued up later. When you eventually file the actual return, the difference between the two payments on account and the real liability is settled by a balancing payment (if you underpaid) or a refund (if you overpaid). The system spreads the cash flow but does not change the total tax you owe.

Who Has to Pay Them

You generally have to make payments on account when both of these are true:

Your last Self Assessment bill was more than £1,000.
Less than 80% of the tax you owed was collected at source (for example through PAYE, or tax already taken from bank interest and dividends).

Most full-time self-employed people and landlords meet both tests, because their profit is not taxed at source. Someone with a large salary taxed under PAYE plus a small side income often fails the second test and so escapes payments on account. If either test is not met, you simply pay the whole bill by 31 January after the tax year ends.

How They Are Calculated

The calculation is mechanical. Take your income tax plus Class 4 NI for the year just filed. Each payment on account is half of that figure. So if your 2025/26 liability for income tax and Class 4 NI is £6,000, each payment on account towards 2026/27 is £3,000, due 31 January 2027 and 31 July 2027.

Note what is excluded: Capital Gains Tax, student loan repayments, the High Income Child Benefit Charge and Class 2 NI are not spread across the instalments. They are collected only with the balancing payment on 31 January, which is one reason the January bill can be larger than the simple half-and-half model suggests.

The Two Deadlines

Payment	Due date (2025/26 year)	Amount
Balancing payment for 2024/25	31 January 2026	Final true-up of prior year
First payment on account (2025/26)	31 January 2026	50% of 2024/25 liability
Second payment on account (2025/26)	31 July 2026	50% of 2024/25 liability

The 31 January date does triple duty: it is the filing deadline for the prior return, the due date for that year balancing payment, and the due date for the first payment on account of the next year. The 31 July date is the second instalment only.

The First-Year Double Bill

The shock arrives in your first year of payments on account. On that first 31 January you pay the full tax for the year just ended and the first 50% instalment for the next year. In effect you can be asked for up to 150% of a normal year tax bill in a single payment.

This is the single biggest cash-flow trap for the newly self-employed, who have usually budgeted for one year of tax, not one and a half. The fix is simple but disciplined: set aside money for tax from your very first invoice, and estimate the liability early using a calculator rather than waiting for the HMRC bill.

Reducing Payments on Account

Because the instalments are based on last year, they can be too high if your income has genuinely fallen. You can ask HMRC to reduce them through your online Self Assessment account or on form SA303. This is the right move if, for instance, you have lost a major client or wound down a side business.

The warning: if you reduce them below what you actually end up owing, HMRC charges interest on the shortfall back to the original due dates, as if you had underpaid. Never cut payments on account simply to ease short-term cash flow when you expect the income to materialise. Reduce only on a realistic forecast of lower profits.

Interest and Penalties

Late payments on account attract interest from the due date at the official HMRC rate (base rate plus a margin) until you pay. They do not usually trigger the separate fixed late payment penalties.

The balancing payment is treated more harshly: it attracts both interest and the 5% late payment penalties at 30 days, 6 months and 12 months overdue. So if cash is tight, prioritise the balancing payment, then the payments on account, to limit penalties.

Worked Examples

Example 1 - steady profits. A sole trader has a 2024/25 liability of £6,000 (income tax plus Class 4 NI). Payments on account towards 2025/26 are £3,000 on 31 January 2026 and £3,000 on 31 July 2026. If 2025/26 turns out the same, there is no balancing payment, and the next pair of instalments is again £3,000 each.

Example 2 - rising profits. The same trader actually owes £8,000 for 2025/26. The two £3,000 instalments cover £6,000, leaving a balancing payment of £2,000 due 31 January 2027. On the same day, the first payment on account for 2026/27 is 50% of £8,000, namely £4,000. The January 2027 demand is therefore £2,000 plus £4,000, totalling £6,000.

Example 3 - first year. A freelancer owes £6,000 for their first trading year. On 31 January they pay the £6,000 balancing payment plus a £3,000 first payment on account, totalling £9,000. Estimate this early with the self-employed tax calculator.

Common Mistakes

Budgeting for one year of tax and being floored by the first-year double bill.
Reducing payments on account to ease cash flow, then paying interest on the shortfall.
Forgetting that CGT, student loans and the HICBC are not spread, so the January bill is bigger than expected.
Missing the 31 July instalment because it feels less prominent than the January deadline.
Assuming a refund cheque is a windfall rather than an overpayment that lowers next year instalments.

Official References

FAQs

What are payments on account?

Payments on account are advance instalments towards your next Self Assessment tax bill. HMRC asks you to pay your income tax (and Class 4 National Insurance) in two equal chunks before the tax year has even finished, based on an estimate equal to your previous year tax bill. The idea is that, instead of settling a whole year of tax in one go, you spread it: you pay half by 31 January and half by 31 July. Each instalment is 50% of your previous year liability. When you later file the actual return, any difference is settled by a balancing payment or refund.

Who has to make payments on account?

You generally have to make payments on account if your last Self Assessment tax bill was more than £1,000 AND less than 80% of the tax you owed was collected at source (for example through PAYE or the tax already deducted from bank interest or dividends). Most self-employed people and landlords whose income is not taxed at source fall into this. If either test is not met you usually do not have to make payments on account, and you simply pay the whole bill by 31 January after the tax year ends.

When are payments on account due?

There are two deadlines. The first payment on account is due by 31 January (the same day as your balancing payment for the previous year and your return filing deadline). The second is due by 31 July. For the 2025/26 tax year, the first payment on account is due 31 January 2027 and the second 31 July 2027, with any balancing payment also due 31 January 2027. Missing these dates triggers interest from the due date, and the late filing and late payment penalty regime can also apply to the balancing payment.

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Why is my first self assessment bill so high?

In your first year of payments on account you face what many call the double bill. You pay the full tax for the year just ended (the balancing payment), and at the same time the first 50% payment on account towards the next year. So on that first 31 January you can be asked for up to 150% of a normal year tax bill in one go. This catches out many newly self-employed people who have only budgeted for one year of tax. Setting aside money from day one, and using a tax calculator to estimate the liability, avoids the shock.

Can I reduce my payments on account?

Yes. If you expect your income to fall, you can ask HMRC to reduce your payments on account through your online account or on the SA303 form. This is sensible if, say, you have lost a major client or your profits are genuinely lower. But reduce them with care: if you cut them below what you actually end up owing, HMRC charges interest on the shortfall back to the original due dates. Never reduce payments on account simply to ease cash flow if you expect the income to be there.

What is a balancing payment?

A balancing payment is the difference between the total tax you actually owe for a year and the two payments on account you already made towards it. If your income rose, the payments on account undershot and you owe a balancing payment by 31 January. If your income fell, the payments on account overshot and HMRC owes you a refund. The balancing payment is always due by 31 January following the tax year, alongside the first payment on account for the next year.

Do payments on account include National Insurance?

Payments on account cover income tax and Class 4 National Insurance, because both are calculated through Self Assessment on your profits. They do not include Class 2 National Insurance or, importantly, your Capital Gains Tax, student loan repayments or the High Income Child Benefit Charge, which are all collected only with the balancing payment on 31 January and are not spread across the two instalments. This is another reason the 31 January bill can be larger than people expect.

What happens if I pay my payments on account late?

HMRC charges interest on late payments on account from the due date until the date you pay, at the official rate (HMRC base rate plus a margin). Unlike the balancing payment, a late payment on account does not normally attract the separate fixed late payment penalties, but the interest still mounts up. The balancing payment, by contrast, attracts both interest and the 5% late payment penalties at 30 days, 6 months and 12 months overdue, so it is the one to prioritise if cash is tight.

Do payments on account ever stop?

They continue as long as you keep meeting the two tests each year (a bill over £1,000 and under 80% taxed at source). If you stop being self-employed, or your untaxed income falls so that most tax is now collected at source, payments on account fall away. In the final year they apply, you may still get a refund or balancing adjustment when the actual figures are known. They are a rolling estimate, not a fixed commitment, so each year is recalculated from your latest return.

How can I budget for payments on account?

The simplest approach is to set aside a percentage of every payment you receive into a separate tax savings pot, sized to your marginal rate plus Class 4 NI. Because payments on account add a forward instalment on top of the year you have just earned, budgeting for roughly 1.5 times a normal year tax bill in your first January is prudent. A take-home or self-employed tax calculator lets you estimate the figure in advance so the two deadlines never come as a surprise.

Are payments on account based on last year or this year?

They are based on last year. Each payment on account is 50% of your previous year income tax and Class 4 NI liability, because HMRC cannot know the current year figure until you file. That is why they are only an estimate. When your actual return is filed, the balancing payment trues up the difference. If you know this year will be very different, you can voluntarily adjust the payments on account up or down rather than wait for the balancing payment.

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About the author

Emma Clarke

UK Tax Writer

Emma Clarke has been writing about UK personal tax since 2018, with a particular focus on Self Assessment, PAYE coding and the practical mechanics of how HMRC actually applies the rules to ordinary salaries. Her work concentrates on translating the dense language of HMRC manuals and Finance Act schedules into worked examples that show, pound by pound, how income tax and National Insurance reduce a gross salary to the figure that lands in a UK bank account. Emma covers the full PAYE lifecycle: tax codes (1257L, BR, K codes, emergency codes), the Marriage Allowance, the High Income Child Benefit Charge, salary sacrifice arrangements and their effect on pensionable pay, the Apprenticeship Levy, and the differences between the rUK and Scottish income-tax regimes. She is particularly interested in the edge cases that catch PAYE employees out — the £100,000 personal-allowance taper, the 60% effective marginal rate it creates, and the interaction between student-loan plans and pension contributions. Every figure in Emma's articles is verified against the current HMRC rates pages and worked through a Self Assessment calculation by hand before publication. She writes to CalcHub's editorial standards: primary-source citations, plain English, no promotional language, and clear "this is general information, not financial advice" disclaimers where appropriate.

Personal-finance writer since 2018
UK tax specialism — PAYE, Self Assessment, National Insurance
Writes to CalcHub editorial standards (primary-source citation, annual review)

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Disclaimer: This guide reflects 2026/27 UK Self Assessment rules. Payment thresholds, deadlines and interest rates change at fiscal events, and your own position depends on your full circumstances. Consult a qualified accountant for advice on your liability, and refer to gov.uk for current rules.