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What are payments on account?
If you pay tax through Self-Assessment, HMRC doesn't wait until the end of the year to collect it. Instead, it asks you to pay towards the current year's bill in two instalments, known as payments on account (POA).
This mainly affects sole traders, partners in a partnership, landlords and anyone with significant income that isn't taxed through PAYE, such as investment or rental income.
POA cover your Income Tax, and Class 4 National Insurance if you are self-employed. They don't include Capital Gains Tax or Student Loan repayments, which are paid in full by 31 January following the end of the tax year.
Who has to make payments on account?
You'll need to make POA unless one of these applies:
• Your last Self-Assessment bill was less than £1,000.
• More than 80% of your tax for the previous year was collected at source, normally through PAYE.
If you've just started working for yourself, you usually won't have made any POA towards your first year, because there was no earlier Self-Assessment liability to base them on. The full liability for that year is payable by 31 January following the end of the tax year.
However, the first POA for the following year is due on the same date. This means your first January bill can be around one and a half times your tax for the year. The worked example below shows how this works.
How HMRC calculates your payments
Each POA is half of your previous year's Income Tax and Class 4 National Insurance, less any tax already deducted at source, such as through PAYE. HMRC works this out automatically when you file your return. POA are due on 31 January (during the tax year) and 31 July (after it ends) towards that year’s tax bill.
These payments then reduce the tax payable on 31 January following the end of the tax year. You will then either make a further payment to cover the additional tax due or receive a repayment, directly to your bank account or against your next tax bill, if you have paid too much tax.
A worked example
Sarah is a self-employed graphic designer who started trading in 2025/26. Her tax bill for 2025/26 was £6,000. As this was her first year, she had made no POA, so the full £6,000 was due on 31 January 2027.
As a result, her POA for 2026/27 are £3,000 each (half of £6,000), payable on 31 January 2027 and 31 July 2027. On 31 January 2027, Sarah therefore pays £9,000: £6,000 for 2025/26 plus her first £3,000 POA for 2026/27.
Her business grew and her 2026/27 tax liability comes to £8,000.
| On 31 January 2028, Sarah pays | Amount |
|---|---|
| 2026/27 tax liability | £8,000 |
| Less: first payment on account (paid 31 January 2027) | (£3,000) |
| Less: second payment on account (paid 31 July 2027) | (£3,000) |
| Balancing payment for 2026/27* | £2,000 |
| First payment on account for 2027/28** | £4,000 |
| Total payable on 31 January 2028 | £6,000 |
| Second payment on account for 2027/28, due 31 July 2028** | £4,000 |
* £2,000 balancing payment for 2026/27 (£8,000 less the £6,000 already paid on account).
** £4,000 first and second POA for 2027/28 (half of £8,000).
That's £6,000 in January 2028, with a further £4,000 due on 31 July 2028.
Filing your return early tells you these figures well in advance, giving you time to plan your cash flow.
Key dates and deadlines
For the 2025/26 tax year, your tax return must be filed online by 31 January 2027. The key payment dates are:
| Date | What's due |
|---|---|
| 31 January 2026 | First payment on account for 2025/26 |
| 31 July 2026 | Second payment on account for 2025/26 |
| 31 January 2027 | Balancing payment for 2025/26, plus first payment on account for 2026/27 |
| 31 July 2027 | Second payment on account for 2026/27 |
This is why January can be expensive. You may be paying off the previous year and paying in advance for the current one at the same time.
Reducing your payments on account
If you expect your income to fall, for example because you've taken time off or lost a major client, you can ask HMRC to reduce your POA.
However, any reduction must be realistic. If you reduce your POA and your actual tax liability turns out to be higher, HMRC will charge interest on the shortfall from the original due dates. HMRC can also charge a penalty where a reduction is made fraudulently or negligently.
If you'd like advice on what a realistic estimate looks like, Sampson Fielding can help, you can get in touch with us here.
You can reduce your POA in any of the following ways:
• Through your HMRC online account
• By submitting form SA303 to HMRC
• By making a claim on your Self-Assessment tax return
• If you are an existing client, by asking your Sampson Fielding contact to do this on your behalf
What happens if you can't pay on time?
HMRC charges interest on late POA and late balancing payments from the day after the deadline. Late payment penalties do not apply to POA, but they do apply to late balancing payments.
Under the current rules, a penalty of 5% of the unpaid tax applies once a balancing payment is 30 days late, with further penalties at six and twelve months. A new penalty regime is being introduced, starting with taxpayers using Making Tax Digital from 2026/27 and extending to all Self-Assessment taxpayers from 2027/28. Under the new regime, a penalty of 4% applies to tax unpaid after 15 days, a further 4% after 30 days, then a daily penalty at 10% a year. (The rate is 3% for Making Tax Digital users in 2026/27.)
If you know you'll struggle to pay, contact HMRC before the deadline. You may be able to set up a Time to Pay arrangement (a payment plan) to spread the cost over monthly instalments.
How to pay
You can pay online, by bank transfer, or through your HMRC online account. Use your 10-digit Unique Taxpayer Reference (UTR) followed by the letter K as your payment reference. This ensures the payment is allocated correctly.
If you'd rather not face large lump sums, HMRC's budget payment plan lets you pay towards your next bill in regular weekly or monthly amounts, provided you are up to date with your previous Self-Assessment payments.
Planning ahead for payments on account is much easier with the right support. Find out more about our personal tax services.
Frequently asked questions
Are payments on account compulsory?
Yes, if your last Self-Assessment bill was £1,000 or more and less than 80% of your tax was collected at source. HMRC will tell you what's due when you file your return.
Why is my January tax bill so high?
In January you may be paying two things at once: the balancing payment for the previous tax year and the first POA for the current one.
What happens if I earn less than expected?
You can apply to reduce your POA through your HMRC online account, using form SA303, or on your tax return. If you've already overpaid, HMRC will refund the difference or set it against your next bill once you file.
Does Making Tax Digital change payments on account?
No. Making Tax Digital for Income Tax changes how you report your income, with quarterly updates through software. The 31 January and 31 July payment dates stay the same. Your quarterly updates do, however, give you a running estimate of your tax bill, which is a useful way to check whether your POA are still realistic.
Will payments become more regular from April 2029?
Yes. The Chancellor confirmed at the Autumn Budget 2026 that, from April 2029, taxpayers who make POA will make smaller, more regular payments during the tax year in which they earn the income. Taxpayers with enough PAYE income will also be able to choose to pay through PAYE. HMRC has yet to publish the details.
This article is for general information and shouldn't be treated as advice for your specific circumstances.
If you'd like help planning for your next tax bill, or want us to take care of your Self-Assessment, we'd love to have a chat. Get in touch with our team.
