Payments on account are the part of Self Assessment that catches people out the first time they see their January statement. They are not a penalty or an extra tax. They are HMRC collecting next year's bill in two instalments before you have worked it out.
How payments on account work
According to gov.uk's payments on account page, you make two payments, each half of the tax you owed last year, due by midnight on:
- 31 January, during the tax year the payment relates to, and
- 31 July, after the tax year has ended.
The amount is an estimate, usually based on the previous year's bill. If your income is higher than that estimate, you owe a balancing payment on top, due by 31 January after the tax year. If it is lower, the difference is credited or repaid.
For 2026/27 (6 April 2026 to 5 April 2027) the schedule is: first payment on account on 31 January 2027, second on 31 July 2027, and any balancing payment on 31 January 2028. The first payment on account for 2026/27 falls on the same date as the balancing payment for 2025/26, which is why January bills look so big.
A worked example
Suppose your 2025/26 tax and Class 4 National Insurance came to £4,000 and you made no payments on account for that year because it was your first full year of self-employment.
| Date | What you pay | Amount |
|---|---|---|
| 31 January 2027 | Balance of 2025/26 bill | £4,000 |
| 31 January 2027 | First payment on account for 2026/27 (half of £4,000) | £2,000 |
| Total on 31 January 2027 | £6,000 | |
| 31 July 2027 | Second payment on account for 2026/27 | £2,000 |
Now suppose the 2026/27 bill turns out to be £5,000. You have paid £4,000 on account, so in January 2028 you pay a £1,000 balancing payment plus the first payment on account for 2027/28, which is £2,500. The pattern repeats every year while your bill stays above the threshold.
This mirrors gov.uk's own example: where a taxpayer has no earlier payments on account, the total due in January is the full bill plus a first payment on account.
When you do not have to make them
You do not need payments on account if either of these applies:
- the Self Assessment tax you owed for the previous year was under £1,000, or
- you paid more than 80% of last year's tax outside Self Assessment, for instance through PAYE or tax deducted at source.
Employees with a small amount of side income, or landlords whose tax is mostly collected through a tax code, often fall into one of these two groups.
Reducing your payments on account
If you expect this year's income to be lower, you can ask HMRC to reduce the payments. gov.uk gives two routes:
- Online: sign in to your Self Assessment account, select your latest return and choose Reduce payments on account.
- By post: send form SA303 to your tax office.
Either way, state the amount you expect to owe so HMRC can recalculate. Be realistic. If your bill ends up higher than you told HMRC, you are charged interest on the difference, so reduce only when you have a good reason, such as a lost contract, a one-off gain last year, or income that has stopped.
What payments on account do not cover
gov.uk notes that the balancing payment can include capital gains tax and, for self-employed people, student loan repayments. Those items sit in the balancing payment rather than being spread over the two advance instalments, which is one reason a sale of shares or a property can make a January bill jump. If you are planning a disposal, our capital gains tax guide explains how it is reported.
What happens if you pay late
Payments on account have fixed dates and interest runs from the day after a missed date. Late payment penalties for unpaid tax are described in our Self Assessment late filing penalty guide. If you cannot pay in full, gov.uk's help if you cannot pay your tax bill page explains payment plans; contact HMRC before the due date, not after.
Planning for January
- Check your payments on account on your online statement: sign in, select your latest return, then View statements.
- Put money aside monthly, using the payment on account calculator to see the schedule for your own numbers.
- Revisit the figures after filing. A filed return can change the next payments, and our guide to amending a return shows how.
How ac-co helps
ac-co drafts your SA100 from your bank and books, shows the full tax computation and files only when you approve it. Because the tax figure is visible before you file, you can budget for January from the computation rather than learning the number from a statement.