Payments on account for Self Assessment: what they are, when to pay and how to plan

Published Wednesday 27 May 2026

Table of contents

• What are tax payments on account?
• Who needs to make payments on account?
• How are payments on account calculated?
• When to make tax payments on account
• What is a balancing payment?
• Payment on account example
• How to pay your payments on account
• What to do if you can't afford your payments on account
• What happens if you miss a payment on account deadline?
• How can you reduce your payments on account?
• How does a payment on account refund work?
• How to plan for payments on account
• Stay on top of payments on account with Xero
• FAQs on payments on account

Key takeaways

• Payments on account are advance payments towards your Self Assessment tax bill, split into two equal instalments due on 31 January and 31 July each year. Each payment is half of your previous year's tax liability for income tax and Class 4 National Insurance.
• You'll need to make payments on account if your last Self Assessment bill was more than £1,000 and less than 80% of that tax was collected at source through PAYE or other deductions.
• If your income drops, you can apply to reduce your payments on account through your HMRC online account or by submitting form SA303. Be cautious, though: underestimating could mean interest charges at the current rate of 7.75%.
• Planning ahead is essential. Setting aside 25% to 30% of your net profit throughout the year helps you avoid cash flow surprises when payment deadlines arrive.

What are tax payments on account?

Payments on account are advance payments towards your next Self Assessment tax bill. If you're self-employed and owe more than £1,000 in tax, HM Revenue and Customs (HMRC) requires you to make these payments.

The system works by splitting your expected tax bill into two instalments, each equal to half of what you paid the previous year. This spreads the cost across the year rather than landing you with one large bill. It's similar in principle to the Pay As You Earn (PAYE) system that employees use, but it applies to income that isn't taxed at source.

Payments on account cover income tax and Class 4 National Insurance contributions. They don't include Capital Gains Tax, student loan repayments, or Class 2 National Insurance.

Who needs to make payments on account?

You must make payments on account if your last Self Assessment tax bill was more than £1,000 and less than 80% of your tax was collected at source. If you're employed as well as self-employed, the tax already deducted through your employer's PAYE scheme counts towards that 80% threshold.

If you meet the criteria, HMRC automatically includes payments on account in your tax bill. You don't need to set them up or apply for them.

You won't need to make payments on account if:

• Your last Self Assessment bill was £1,000 or less.
• More than 80% of the tax you owed was already deducted at source.
• You made voluntary payments that brought your outstanding liability below the threshold.

The £1,000 threshold only counts income tax and Class 4 National Insurance. It excludes Capital Gains Tax, Class 2 National Insurance, and student loan repayments.

How are payments on account calculated?

Each payment on account equals 50% of your previous year's tax liability for income tax and Class 4 National Insurance. HMRC calculates this automatically based on your last Self Assessment tax return.

To work out what you'll owe:

1. Take your total income tax and Class 4 National Insurance from your last tax return.
2. Divide that figure by two.
3. Pay that amount on each of the two payment dates.

For example, if your 2024/25 tax bill for income tax and Class 4 National Insurance was £4,000, each payment on account for 2025/26 would be £2,000.

Capital Gains Tax, Class 2 National Insurance, and student loan repayments are excluded from the calculation. These are paid separately as part of your final Self Assessment bill.

When to make tax payments on account

There are two fixed deadlines for payments on account each tax year. Missing either one triggers interest charges, so it's worth marking both dates clearly in your calendar.

The 31 January deadline covers two things:

• Any remaining tax owed from the previous tax year, known as a balancing payment.
• Your first payment on account for the current tax year.

The 31 July deadline covers:

• Your second payment on account for the current tax year.

For the 2025/26 tax year, that means your first payment on account is due by 31 January 2026 and your second by 31 July 2026. Both must reach HMRC by midnight on the deadline date.

What is a balancing payment?

A balancing payment is the difference between what you've already paid through payments on account and what you actually owe for the tax year. It settles your tax bill in full once your real income is known.

If your actual tax liability is higher than the two payments on account you've already made, you'll owe a balancing payment. This is due on 31 January following the end of the tax year, at the same time as your first payment on account for the next year.

If your actual tax bill is lower than your payments on account, you'll have overpaid. In that case, HMRC either refunds the difference or offsets it against your next payment.

Here's how it works in practice. If your payments on account for 2024/25 totalled £4,000 (two payments of £2,000) but your actual tax bill comes to £5,200, your balancing payment on 31 January 2026 would be £1,200. On that same date, you'd also owe your first payment on account for 2025/26, calculated at £2,600 (half of the £5,200 liability).

Payment on account example

Seeing the numbers laid out helps clarify how payments on account work in practice, especially in your first year of Self Assessment.

First year: the 150% January bill

In your first year of self-employment, January can feel like a financial shock. You'll pay your full previous year's tax bill plus your first payment on account for the current year, all on the same date.

Suppose you start self-employment in the 2024/25 tax year. You file your tax return by 31 January 2026, and your tax bill is £5,000. Your payment schedule looks like this:

• 31 January 2026: pay £5,000 (2024/25 tax bill) plus £2,500 (first payment on account for 2025/26). Total: £7,500.
• 31 July 2026: pay £2,500 (second payment on account for 2025/26).

That first January payment is 150% of your annual tax bill. Planning ahead for it can make a real difference to your cash flow.

Second year onwards

From the second year, the system becomes more predictable. You'll already have made payments on account during the year, so the January bill is typically just a balancing payment plus your next first payment on account.

If your 2025/26 tax bill turns out to be £5,400, you'd owe a balancing payment of £400 (£5,400 minus the £5,000 already paid through two payments on account). You'd also owe £2,700 as your first payment on account for 2026/27. Your second payment on account of £2,700 would follow on 31 July 2027.

How to pay your payments on account

HMRC accepts several payment methods for payments on account. Processing times vary, so choose a method that allows your payment to arrive by the deadline.

Faster payment options that typically arrive the same day or next working day include:

• Online banking or faster payments through your bank.
• Debit card payment through your HMRC online account.
• CHAPS (same-day bank transfer, though your bank may charge a fee).

Slower options that take longer to process include:

• Direct Debit, which takes around five working days to set up initially.
• Cheque sent by post, which can take several working days to arrive and clear.

You can also spread the cost throughout the year using HMRC's Budget Payment Plan. This lets you make weekly or monthly payments towards your tax bill, reducing the impact of the January and July lump sums. You can set up a Budget Payment Plan through your HMRC online account.

What to do if you can't afford your payments on account

If a payment on account deadline is approaching and you're struggling to pay, there are options available. Acting early gives you the best chance of avoiding penalties and additional costs.

Cash flow pressures are common for small businesses. Xero Small Business Insights data shows UK small business sales growth slowed to 2.9% year-on-year in early 2026, putting extra strain on cash reserves at a time when tax obligations still need to be met.

Your main options are:

• Set up a Time to Pay arrangement with HMRC. You can call HMRC's Self Assessment helpline to negotiate paying in instalments over an agreed period, typically up to 12 months.
• Use HMRC's Budget Payment Plan to make smaller, regular payments towards future tax bills. This won't help with an overdue amount, but it prevents the same situation next year.
• Apply to reduce your payments on account if you expect your income to be lower this year. This reduces the amount due immediately.

If you don't pay on time, HMRC charges interest on the outstanding amount at 7.75% (the rate from 9 January 2026). Getting in touch with HMRC before the deadline is always better than ignoring the problem.

What happens if you miss a payment on account deadline?

Missing a payment on account deadline triggers interest charges from the day after the deadline until you pay in full. The current HMRC interest rate on late payments is 7.75%, effective from 9 January 2026.

Unlike late filing penalties or late payment of your final Self Assessment bill, there are no automatic fixed penalties specifically for late payments on account. The cost is purely through interest charges, which accrue daily on the unpaid amount.

However, if your payments on account remain unpaid when your final Self Assessment bill is calculated, the combined outstanding amount could trigger the standard late payment penalty regime. Penalties for late payment of your overall Self Assessment bill start at 5% of the tax unpaid 30 days after the due date, with further 5% penalties at six months and 12 months.

The simplest way to avoid these costs is to pay on time or contact HMRC before the deadline to arrange a Time to Pay agreement.

How can you reduce your payments on account?

If you expect your income to be lower than the previous year, you can apply to reduce your payments on account. This is useful if you've had a quieter trading period, lost a major client, or taken time off.

To reduce your payments on account online:

1. Sign in to your Government Gateway account.
2. Go to your Self Assessment tax account.
3. Select the option to view or reduce your payments on account.
4. Enter the amount you expect to owe for the current tax year.
5. Submit the claim. HMRC will update your payments on account to reflect the lower amount.

You can also reduce your payments by post using form SA303 from GOV.UK.

Before reducing your payments, consider the risks carefully. If you underestimate your income and end up owing more than you've paid, HMRC charges interest at 7.75% on the shortfall. If HMRC considers the claim to have been negligent or fraudulent, additional penalties may apply.

Speaking with an accountant or bookkeeper before reducing your payments can help you estimate accurately and avoid unexpected costs.

How does a payment on account refund work?

If you've paid more through payments on account than your actual tax bill, HMRC will refund the difference. This commonly happens when your income drops compared to the previous year.

HMRC reviews your tax return to determine whether you've overpaid. If you have, the refund process works as follows:

• If you've provided your bank details, HMRC usually refunds automatically after processing your return.
• If an automatic refund doesn't arrive, you can request one through your HMRC online account.
• If you'd prefer not to receive a cash refund, you can have the overpayment credited against your next payment on account instead.

Refund timescales vary. According to its service dashboard, HMRC aims to process refunds within a few weeks of receiving a return, but delays of four to six weeks are not unusual during busy periods. If your refund hasn't arrived after six weeks, contact HMRC directly.

How to plan for payments on account

Good planning takes the stress out of payments on account. A few simple habits can help you stay ahead of your tax obligations and protect your cash flow.

Set aside money throughout the year

A common approach is to set aside 25% to 30% of your net profit each month into a separate savings account. This builds a dedicated tax fund, so when January and July arrive, the money is already there.

File your tax return early

You don't have to wait until January to file your Self Assessment return. Filing early gives you a clear picture of what you owe well before the deadline, leaving more time to plan your cash flow or set up a Budget Payment Plan if needed.

Review your payments on account regularly

If your income fluctuates, check whether your payments on account still reflect your actual earnings. Reducing them when appropriate frees up cash; leaving them too high means waiting for a refund. Keeping your financial records up to date makes this review straightforward.

Use accounting software to track your position

Cloud accounting tools like Xero give you a real-time view of your income, expenses, and cash flow. Customisable reports help you estimate your tax liability throughout the year, so payments on account don't come as a surprise. With Making Tax Digital for Income Tax rolling out from April 2026 for sole traders earning over £50,000, keeping digital records is becoming essential.

Stay on top of payments on account with Xero

Payments on account don't have to catch you off guard. With a clear view of your finances, you can plan ahead, set aside the right amount, and meet your deadlines confidently.

Xero's accounting software gives you real-time visibility over your cash flow and income, making it easier to estimate your tax liability and prepare for upcoming payments. By tracking your income and expenses as they happen, you'll always know where you stand.

Getting paid on time also matters. The Xero Small Business Insights index shows UK small businesses wait an average of 29 days to be paid, with invoices arriving 8.2 days late.

Xero's automated invoice reminders and online payment options help you get paid faster, so the cash is there when your tax bill arrives. To see how Xero can help you stay on top of your finances, get one month free.

FAQs on payments on account

Here are answers to frequently asked questions about payments on account for Self Assessment.

Can you make payments on account through PAYE?

If you're employed as well as self-employed, you may be able to have some of your Self Assessment liability collected through your PAYE tax code. This is known as coding out, and it's available for amounts up to £3,000. Contact HMRC or check your tax code notice to see if this applies to you.

Do payments on account apply in your first year of Self Assessment?

No, you won't make payments on account until after you file your first Self Assessment return. In your first year, you pay only the tax owed for that year. Payments on account then begin from the following January, based on that first bill.

What happens to your payments on account if you stop being self-employed?

If you stop self-employment and your next tax bill falls below £1,000, HMRC will stop requiring payments on account. You can also contact HMRC or apply to reduce your payments to zero if you know your income has dropped significantly.

Are payments on account the same as paying tax twice?

No. Payments on account are advance payments towards your current year's tax bill, not a double charge. Any overpayment is refunded or credited against future bills once your actual liability is calculated.

Can you set up a direct debit for payments on account?

Yes. You can set up a direct debit through your HMRC online account to pay each instalment automatically on the due date. Allow at least five working days before the deadline to set it up for the first time.