Payments on account: why your tax bill can be bigger than you expected
Payments on account are advance payments towards your next Self Assessment bill. Each payment is usually half your previous year’s relevant tax bill, and they’re normally due on 31 January and 31 July. Your first January payment can include both the tax you still owe for last year and the first advance payment. There are exceptions. HMRC: payments on account.
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.
What are you paying for?
Payments on account are normally due on 31 January and 31 July. Each is usually half the previous year’s relevant bill. For sole traders, that bill generally includes Income Tax and Class 4 National Insurance, after taking off any tax already collected at source (taken off before the income reached you). HMRC: payments on account.
Payments on account don’t cover everything that can appear on your Self Assessment statement. For example, student loan repayments and Capital Gains Tax are dealt with separately. So “my total bill” and “the figure used for payments on account” can be different. HMRC: balancing payments.
A worked example with dates
Suppose your relevant bill for 2025/26 is £4,000 and you haven’t made any advance payments. Assume all of it forms the basis for payments on account, and no exceptions apply.
Payment date | What it covers | Amount |
|---|---|---|
31 January 2027 | Outstanding 2025/26 bill | £4,000 |
31 January 2027 | First advance payment for 2026/27 | £2,000 |
31 July 2027 | Second advance payment for 2026/27 | £2,000 |
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. The example follows HMRC’s calculation method.
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: £2,750 altogether.
Who is exempt from payments on account?
You normally don’t have to make payments on account if your relevant bill for the previous year was less than £1,000. The same applies if more than 80% of your tax was collected outside Self Assessment, such as through PAYE. Exactly £1,000 doesn’t count as “less than £1,000”. HMRC: exceptions.
If you run a side business alongside a job, an exception may apply. But don’t assume that having a salary automatically settles it.
Can I reduce payments on account if my income falls?
Expecting the relevant bill to be lower? You can apply to reduce your payments on account. Base that on a realistic forecast that includes other income and tax changes, not just this month’s bank balance.
If you reduce the payments too far, HMRC can charge interest on the shortfall. And if the real issue is that you can’t afford the bill, contact HMRC about payment arrangements. Don’t treat a reduction as a way to put off tax you expect to owe. HMRC: reducing payments, help paying HMRC.
Give each payment a place in your plan
Add January and July to your cash-flow forecast. Next to each date, note the tax year it relates to, what you’ve already paid, and 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.
