Payments on account are advance payments towards your next Self Assessment bill. HMRC asks for two a year, due by 31 January and 31 July, each one half of your previous year's tax bill, under the rules on GOV.UK's payments on account page. They exist so that self-employed people and landlords pay tax through the year, roughly as employees do through PAYE, rather than in one annual lump. The system surprises people twice: the first time they are asked to pay one and a half years of tax at once, and the first July they forget. Correct as at 8 August 2026.
Who has to make payments on account?
You make them if your last Self Assessment bill was £1,000 or more, unless more than 80% of the tax you owed for that year was collected at source (through PAYE, for example). Below the £1,000 line, or above the 80% line, you simply pay one balancing amount by 31 January and no advance payments are asked for.
In practice that catches most sole traders, partners and landlords with meaningful untaxed income, and it catches them hardest in year one, as the example below shows.
When are the deadlines?
The Self Assessment calendar runs like this for the 2025/26 tax year and the payments that flow from it:
| Date | What is due |
|---|---|
| 31 January 2027 | Online filing deadline for the 2025/26 return, the 2025/26 balancing payment, and the first payment on account for 2026/27 |
| 31 July 2027 | Second payment on account for 2026/27 |
| 31 January 2028 | 2026/27 balancing payment (or refund), plus the first payment on account for 2027/28 |
The filing and payment deadlines for Self Assessment are set out on GOV.UK's deadlines page. Interest runs on payments made late.
Example
Example. Sara starts self-employment in the 2025/26 tax year and her first Self Assessment bill, due 31 January 2027, is £8,000, with nothing collected at source. She pays the £8,000, plus her first payment on account for 2026/27 of £4,000 (half of £8,000). That is £12,000 on one day. On 31 July 2027 she pays the second £4,000.
When her 2026/27 return is done, her actual bill for that year comes to £10,000. She has already paid £8,000 on account, so on 31 January 2028 she pays the £2,000 balance, plus her first 2027/28 payment on account of £5,000 (half of £10,000). Once the pattern is understood, it can be planned for; discovered late, it is a cash-flow shock.
How do payments on account interact with PAYE and CGT?
The 80% rule is the escape hatch most mixed earners eventually use. If more than 80% of the tax you owed last year was collected at source (through a PAYE tax code, for example), no payments on account are asked for, whatever the bill's size. Someone employed at a good salary with a modest rental profit often sits on the right side of that line; a full-time landlord or contractor rarely does. As income shifts from employment to self-employment, expect the year the balance tips to be the year the double payment lands.
Capital gains work the other way: gains are excluded from the payments-on-account calculation and settle with the balancing payment instead. That cuts both ways. A one-off gain does not inflate next year's advance payments, but it also means a big January figure the payments on account have not touched, and UK residential property gains are dealt with separately again, within 60 days of completion. If a sale is coming, map all three streams against the calendar before you commit the proceeds.
Can you reduce your payments on account?
Yes. If you expect your next bill to be lower (profits down, a one-off gain not repeating, more tax now collected at source), you can ask HMRC to reduce your payments on account, online or by post. The risk sits with you: if you reduce them below what the final bill turns out to need, HMRC charges interest on the shortfall from the date each payment was originally due. Reduce on evidence, not optimism.
Worked small: suppose last year's bill was £8,000, so £4,000 is due each instalment, and you reduce both to £2,500 because a contract ended. If the final bill lands at £6,200 (£3,100 per instalment properly due), interest runs on the £600 shortfall per instalment from each original due date until paid. Reduce to a defensible forecast, not a hopeful one, and revisit the claim if the year improves.
If your bill turns out higher than the payments on account, there is no penalty for that on its own: you simply pay the balance at the next 31 January. And if events do gut a year's profits, the reduction claim is there to be used; paying £8,000 of advances against a £3,000 year is a loan to HMRC that a one-page claim would have avoided.
What if you cannot pay?
Do not miss the date silently. HMRC's Time to Pay system can spread a bill in instalments, and it works best approached before the deadline rather than after. Our guide to HMRC Time to Pay arrangements covers how to set one up and what HMRC looks at.
What to do now
If this is your first year in Self Assessment, get the return prepared early so the January total (balancing payment plus first payment on account) is known months before it is due. If your profits have fallen, look at whether a reduction claim is justified before the next payment date. And if July's payment passed you by, deal with it now: interest is running. Our tax planning team builds the payment calendar into the year, not into the last week of January.
Frequently Asked Questions
Because the first bill usually carries the whole of last year's tax plus half of the coming year's on the same day. A first-year bill of £8,000 arrives as £12,000 once the first payment on account is added. It is the one-off cost of moving onto the advance-payment cycle.
No. Payments on account are based on your income tax and Class 4 National Insurance, and gains are settled with the balancing payment instead. Note that UK residential property gains have their own 60-day reporting and payment rule, separate from the Self Assessment cycle.
If your payments on account end up higher than the final bill, the difference is repaid or set against your next payments once the return is processed. That is common in the first year after profits fall.
You can be charged interest from the due date until you pay, so ignoring it costs money even if nothing else happens straight away. If cash is the problem, a Time to Pay arrangement agreed with HMRC is the managed route.
Yes, when the trigger conditions stop applying: your bill falls below £1,000, or more than 80% of your tax starts being collected at source, for example after returning to employment. They resume automatically if a later year crosses the thresholds again, so each year's return effectively resets the answer.
Set aside a fixed share of income monthly from day one, sized to your expected tax rate, and treat 31 January and 31 July as withdrawal dates rather than fundraising deadlines. The cycle only hurts when the money is being found in the month the payment is due.
Talk to us about your payment calendar
If payments on account have caught you out, or you want the next 31 January quantified now rather than discovered then, speak to Zaman Khan, Senior Manager. The first conversation maps your income sources, what the next two payment dates will actually ask of you, and whether a reduction claim is defensible. Call 020 8554 2135 or email info@visionconsulting.co.uk, or use our contact page.
By the Vision Consulting team.
This is general information, not advice. Your position depends on your circumstances.