Payments on account: why your tax bill can be bigger than you expected

The short answer: In 2026/27, payments on account are two advance payments towards your next Self Assessment bill. Each is usually half of last year's bill, due on 31 January and 31 July. You don't make them if last year's bill was under £1,000. From April 2029 they become smaller, regular payments through the year, with the details due in 2027.

That's why you can save £4,000 for your first tax bill and still find £6,000 is due. Here's how the pieces fit together, and what the 2029 change means for you.

Are payments on account changing?

Yes, but not until April 2029. Until then, the 31 January and 31 July payments work exactly as they do today, so nothing changes for your next bill.

At the Budget on 28 October 2026, the government said that "from April 2029, taxpayers who already make Payments on Account will make smaller, more regular contributions towards their tax bill throughout the year" (HM Treasury: Budget 2026, section 3.7).

Here's what has been decided so far, from HMRC's summary of consultation responses:

• It covers everyone who already has to make payments on account.

• The default will be automated payments during the year, such as by Direct Debit.

• If you also have a job or pension with enough PAYE income, you can choose to pay through PAYE instead. An earlier plan to make PAYE compulsory has been dropped.

• From 2028, HMRC plans web and app tools to estimate your bill, track what you've paid and make voluntary payments early.

Plenty is still open, though. HMRC says it will set out more detail next year, in 2027, on:

1. how often you pay, and when

2. safeguards for people facing money problems

3. penalties and interest

4. how the move from the current system will work

The Budget's tax overview confirms that payments will be automated, with an option to pay through PAYE if you qualify. So if you see a set monthly schedule or a new threshold quoted as fact, take it with a pinch of salt. The consultation asked about changing the £1,000 threshold, and most people who answered wanted to keep or raise it. Nothing has been decided yet.

The table is correct on 2 November 2026. Expect the 2029 column to change as HMRC fills in the details.

Why the change? According to HMRC, tax can currently be paid up to 22 months after the income was earned. That gap is part of why January bills can feel so big.

What are payments on account, and what do they cover?

Payments on account are advance payments towards your next tax bill. They spread the cost into two instalments, and each one is usually half of the tax you owed last year (HMRC: payments on account).

If you're self-employed, they cover Income Tax and Class 4 National Insurance. Any tax already taken off your income at source (before it reached you) is taken into account when your final bill is worked out (HMRC: balancing payments).

They don't cover everything on your Self Assessment statement. Capital Gains Tax and student loan repayments go into the January balancing payment instead (the top-up you pay once your real bill is known). So "my total bill" and "the figure used for payments on account" can be different numbers.

Example: a £4,000 first tax bill, worked through

Suppose your bill for 2025/26 is £4,000, and it's your first year, so you haven't made any advance payments. These are made-up, round figures. Assume all of it counts towards payments on account and no exceptions apply.

So your first January payment is £6,000. You aren't paying twice for the same year. £2,000 of it goes towards 2026/27. This follows HMRC's own worked examples, and 31 January 2027 is also the deadline for your online 2025/26 return (HMRC: Self Assessment deadlines).

Now suppose your final 2026/27 bill is £4,500. You've paid £4,000 towards it, which leaves £500. On 31 January 2028 you'd normally pay that £500 plus a new £2,250 payment on account for 2027/28. That's £2,750 altogether.

If your income falls instead and you've overpaid, you may be able to claim a refund.

Who has to make payments on account?

You must make them unless one of two exceptions applies (HMRC: payments on account):

• your tax bill for last year was less than £1,000

• more than 80% of last year's tax was paid outside Self Assessment, for example through your tax code or tax already taken off savings interest

Exactly £1,000 doesn't count as "less than £1,000". Your Self Assessment statement or online account shows whether you need to make them, and how much.

If you run a side business alongside a job, the 80% exception may apply. But don't assume a salary settles it. It depends on how much of your total tax PAYE already covers.

Can I reduce my payments on account?

Yes, if you expect your bill to be lower than last year. You can ask HMRC to reduce them online (sign in, open your latest return and choose "Reduce payments on account") or by post with form SA303. You'll need to give the income you expect, so HMRC can work out the new amounts (HMRC: payments on account).

Base it on a realistic forecast that includes any other income, not just this month's bank balance. If you cut the payments too far and your bill turns out higher, HMRC charges interest on the difference. Late payment interest is the Bank of England base rate plus 4% (HMRC: interest rates).

A reduction isn't a way to put off tax you expect to owe. If the real problem is that you can't afford the bill, look at HMRC payment plans instead (more on those below).

Tax treatment depends on the individual circumstances of each client and may be subject to change in future.

Will I have to pay Self Assessment monthly?

Not yet, and nobody knows the 2029 schedule for sure. HMRC hasn't decided how often the new payments will be. In the consultation, people open to change "generally favoured" quarterly over monthly payments. That's a view from respondents, not a decision (HMRC: summary of responses).

You can already choose to pay monthly today, though. A Budget Payment Plan lets you make weekly or monthly Direct Debit payments towards your next bill (HMRC: pay weekly or monthly). A few rules:

• you must be up to date with your last Self Assessment bill

• you choose how much and how often

• you can pause payments for up to 6 months

• if you haven't paid enough, you pay the difference at the deadline, and if you're in credit you can ask for a refund

It's a handy way to avoid the January lump, and it's close to what the 2029 system aims to do.

What if I can't pay in January or July?

Help is there if you need it. If you can't pay in full, you may be able to set up a payment plan and pay in monthly instalments. HMRC checks the plan is affordable for you (HMRC: if you cannot pay your tax bill on time).

Leaving it is the expensive option. Late tax picks up interest, and the unpaid bill gets penalties of 5% at 30 days, 6 months and 12 months (HMRC: Self Assessment penalties).

How do I plan for January and July?

Give each payment its own line in your cash-flow forecast. Next to each date, note:

1. the tax year it relates to

2. what you've already paid

3. what you still need to find

That small detail makes a big difference. You can get your annual tax estimate right and still need more cash ready for January. The sole trader tax planner can help you estimate the bill and see your key dates in one place.

If you'll also be joining Making Tax Digital, our guide to what sole traders need to do for Making Tax Digital explains the quarterly updates.

Still got questions?

What is the first payment on account for 2026/27? It's due on 31 January 2027, alongside any balancing payment for 2025/26. It's usually half of your 2025/26 bill (HMRC: payments on account).

Do I make payments on account in my first year? Not in the run-up to your first bill. But your first January payment is your full bill plus the first payment on account for the next year, as in the example above.

Are payments on account compulsory? Yes, unless last year's bill was under £1,000 or more than 80% was paid outside Self Assessment. You can ask to reduce them if you expect a lower bill.

Why is HMRC asking me for payments on account? Because last year's bill was £1,000 or more and less than 80% was paid at source. HMRC uses last year's bill as its starting estimate for this year.

Do I need to do anything now about the 2029 change? No. The current rules apply until April 2029, and HMRC will set out the details in 2027. Its new tools to estimate and pre-pay your bill are due in 2028 (HMRC: summary of responses).

What's the easiest way to check what I owe? Sign in to your HMRC online account and view your statements. It shows the payments on account you've made and what's due next.