Payments on account: when they're due and how to reduce them

Payments on account are two advance payments towards next year's Self Assessment bill

Payments on account are two advance payments towards your next Self Assessment bill, due by midnight on 31 January and 31 July, each usually half of the tax you owed for the previous year. According to GOV.UK, they cover Income Tax and, if you are self-employed, Class 4 National Insurance.

The cycle for most people runs like this:

1. 31 January: you pay any balancing payment for the tax year that ended the previous 5 April, plus the first payment on account for the current tax year.
2. 31 July: you pay the second payment on account for the current tax year.
3. The next 31 January: you file the return, HMRC compares the two payments with your real bill, and you pay the difference or get it back, together with the next first payment on account.

So the payment due on 31 January 2027 settles the 2025 to 2026 tax year and starts paying for 2026 to 2027. Work out your own bill and payment dates with the self-employed tax calculator, which uses the same engine as the figures below.

The £1,000 and 80% tests decide whether you pay them

You must make payments on account unless last year's Self Assessment bill was under £1,000, or more than 80% of the tax you owed was already paid outside Self Assessment, for example through your tax code or tax deducted from bank interest. Both tests come from GOV.UK and rest on section 59A of the Taxes Management Act 1970.

The 80% test catches employees with side income. These examples use RightSums's self-employed tax engine for the 2026 to 2027 tax year, with the job taxed correctly through PAYE.

No Class 4 NI is due in these rows because each side profit is under the £12,570 lower profits limit. The extra tax is 20% of the profit for the basic rate earner and 40% for the £60,000 earner.

What payments on account include, and what goes only in the balancing payment

Payments on account include Income Tax and Class 4 National Insurance. According to GOV.UK, student loan repayments and Capital Gains Tax are left out and paid only in the balancing payment on 31 January. Voluntary Class 2 National Insurance, £3.65 a week in 2026 to 2027, falls into the balancing payment too, because payments on account cover only Income Tax and Class 4.

The High Income Child Benefit Charge is included when you pay it through Self Assessment. Section 681B of the Income Tax (Earnings and Pensions) Act 2003 makes it "a charge to income tax", so it is part of the Income Tax bill your payments on account are based on. A £2,000 charge in one year adds £1,000 to each payment on account for the next year, even if the charge will be lower or gone. Our guide to the High Income Child Benefit Charge explains how to cut it, and a lower expected charge is a valid reason to reduce your payments.

First year self-employed: why January can be 150% of your bill

In your first year of Self Assessment, the 31 January payment is usually 150% of your bill: the whole bill for the year just ended plus a first payment on account of half of it again. GOV.UK's own example is a £3,000 bill with £4,500 due by 31 January.

If you started working for yourself in the 2025 to 2026 tax year and have never sent a return, GOV.UK says you must register by 5 October 2026 or you could get a penalty. Your first return is then due online by 31 January 2027, the same day as the 150% payment. Setting aside money from your first invoices is the only way to have it ready, because the tax for a whole year and the first advance for the next year land on one date.

Worked example: £40,000 profit across 2025 to 2026 and 2026 to 2027

Priya became a sole trader in England on 6 April 2025 with no other income and made £40,000 profit in 2025 to 2026. We worked out her figures with RightSums's self-employed tax engine; Income Tax bands, Class 4 limits and Class 4 rates are the same in both tax years (£12,570 Personal Allowance, 6% Class 4 from £12,570 to £50,270, 2% above), according to GOV.UK.

• Income Tax: 20% of £27,430 = £5,486.00.
• Class 4 NI: 6% of £27,430 = £1,645.80.
• 2025 to 2026 bill: £7,131.80, so each payment on account for 2026 to 2027 is £3,565.90.

In 2026 to 2027 her profit rises to £45,000: Income Tax is £6,486.00 and Class 4 is £1,945.80, a bill of £8,431.80. Her two payments on account covered £7,131.80, so the balancing payment is £1,300.00. Because the new bill is higher, her next payments on account rise to £4,215.90 each.

You can reproduce each year in the self-employed tax calculator by entering the profit as income with no expenses and no salary.

The balancing payment settles the difference on 31 January

The balancing payment is your total tax for the year minus the payments on account you made, paid by midnight on 31 January after the tax year ends. According to GOV.UK, it also includes any Capital Gains Tax and, if you are self-employed, student loan repayments.

If your payments on account came to more than your final bill, you do not owe a balancing payment and you may be able to claim a refund, according to GOV.UK. With a bill of £4,531.80 and £7,131.80 already paid, for example, £2,600.00 would be due back once the return is filed.

Reducing payments on account with SA303, and the interest if you cut too far

You can reduce your payments on account if you expect this year's bill to be lower than last year's, online in your HMRC account or by sending form SA303 by post. According to GOV.UK, you must give the income you expect so HMRC can work out the new amounts, and you must claim by 31 January after the end of the tax year.

Reducing is worth doing when profits fall. If Priya expected only £30,000 profit in 2026 to 2027, her bill would be £4,531.80, so she could cut each payment on account from £3,565.90 to £2,265.90, holding back £1,300.00 on each date.

The risk is interest. According to GOV.UK, if you reduce your payments and the bill turns out higher, you are charged interest on the difference. If Priya reduced to £2,265.90 but her profit came in at £45,000:

• each payment on account should have been £3,565.90 (the original amount, which is less than half the £8,431.80 final bill), so each was £1,300.00 short;
• at the 7.75% late payment interest rate, the first shortfall runs from 31 January 2027 to 31 January 2028 (365 days) and costs £100.75;
• the second runs from 31 July 2027 to 31 January 2028 (184 days) and costs £50.79.

That is £151.54 of interest on top of a £3,900.00 balancing payment due on 31 January 2028. Reduce to your honest estimate, not to zero, and keep the difference in a savings account until the bill is known.

Late payment interest and penalties in 2026

HMRC charges late payment interest of 7.75% a year on Self Assessment tax paid late, including late payments on account, from 9 January 2026. According to HMRC's interest rate page, the rate is the Bank of England base rate plus 4%, a margin that applies from 6 April 2025. The Bank of England held Bank Rate at 3.75% on 17 September 2026, so 7.75% is the current rate.

Late payment penalties work differently from interest, and they do not apply to payments on account under either system:

In the first year under the new penalties you have 30 days rather than 15 before a penalty starts, and only once. If you contact HMRC and agree a payment plan, GOV.UK says penalties are paused from the date you got in touch.

Can Self Assessment tax be paid in instalments?

Yes, you can pay Self Assessment tax in weekly or monthly instalments before the deadline through a Budget Payment Plan paid by Direct Debit. According to GOV.UK, you must be up to date with your previous Self Assessment payments, you choose the amount, the money is used against your next bill, and you can pause payments for up to 6 months.

For Priya, £10,697.70 due on 31 January 2027 is about £2,674 a month if she starts on 1 October 2026 and pays four times. If her plan falls short, she pays the rest by the deadline; if it overshoots, she can ask for the extra back.

If a deadline has already passed and you cannot pay, you may be able to agree a payment plan, known as Time to Pay, with HMRC. GOV.UK says HMRC will check whether the plan is affordable, and you will need the reference number for the tax, your bank details and details of your income and spending.

Making Tax Digital from April 2026 adds quarterly updates, not quarterly payments

Making Tax Digital for Income Tax applies from 6 April 2026 to sole traders and landlords whose qualifying income from self-employment and property was over £50,000 in the 2024 to 2025 tax year, according to GOV.UK. The threshold falls to £30,000 from 6 April 2027 (based on 2025 to 2026 income) and £20,000 from 6 April 2028 (based on 2026 to 2027 income).

It changes how you report, not when you pay. You keep digital records and send quarterly updates by 7 August, 7 November, 7 February and 7 May, with no penalties for late updates in 2026 to 2027. GOV.UK's Making Tax Digital penalty guidance still gives 31 January after the end of the tax year as the deadline to submit the return and pay the tax, and says penalties do not apply to "any payments on account that you may need to make", so the 31 January and 31 July payments on account continue. HMRC's agent guidance adds that the in-year estimates from quarterly updates help you decide whether to reduce your payments on account.

Priya's self-employment income in 2025 to 2026 was at least £40,000, over the £30,000 threshold, so she comes into Making Tax Digital from 6 April 2027. Her payment dates in the table above do not change.

Your next step: enter this year's expected profit and any salary in the self-employed tax calculator. If its bill is clearly below last year's, reduce your payments on account online; if it is higher, set up a Budget Payment Plan now so 31 January is covered.