What Are HMRC Payments on Account?

HMRC payments on account are advance payments towards your next self-assessment tax bill. They commonly affect self-employed workers, landlords and higher earners. Many taxpayers are unaware they may need to make advance payments towards the following tax year, particularly when filing a Self Assessment return for the first time.

This guide explains how payments on account work, when they are due, how they are calculated and when they may be reduced.

Why payment on account is taken

HMRC uses the payments on account system to make tax payments overall more efficient. By allowing you to spread the cost of your tax bill throughout the year, it should ease the cashflow burden and make it easier for you to be able to pay the entire bill by the deadline. For HMRC there is the benefit that they will receive a financial boost halfway through the year, allowing the government to use the funds for public spending.

Using payments on account also means you won’t be at risk of falling into arrears on your tax payment. It prevents you from the endless cycle of having to save in the current year just to be able to pay off the last year. From HMRC’s perspective, advance payments reduce the possibility of tax avoidance and ensures people are not benefitting from large amounts of tax withheld until the next tax deadline.

Key takeaways

• Payments on account are advance payments towards your next Self Assessment tax bill
• They are usually split into two instalments due on 31 January and 31 July each year
• Each payment is typically 50% of your previous year’s tax liability
• A balancing payment may also be due if your tax bill increases compared to the previous year
• You may be able to reduce payments on account if your income has decreased
• They mainly apply to self-employed individuals, landlords and others with untaxed income

Who has to use payments on account?

Not everyone who completes a self-assessment tax return will be required to pay on account. If 80% or more of your income is taxed at source then you will be exempt from the payments on account system. However, if less than 80% of your income is taxed at source and your personal income tax bill is higher than £1,000 then you will be automatically required to pay on account.

How payments on account works

Although payments on account is not a particularly complicated concept, it is notorious for catching people out, especially those who are completing their personal tax return for the first time. You will only enter the payments on account system where you are not exempt from the above conditions, and only after you have submitted your first tax return. However, from the moment you submit your first tax return, you are automatically required to settle your first payment on account by midnight of 31 January. In practice, this means that you may have already paid your entire tax bill for your first year but are now also expected to pay half in advance for your next tax return.

The second payment on account is the other half of your predicted tax bill and this payment is due by 31 July. After this, if there is any amount still outstanding, this will need to be paid as the ‘balancing payment’ by the following 31 January as well as the next payment on account. If you have paid too much tax for the year, then you will be eligible to receive a rebate or you could put this amount towards reducing the next payment on account.

How payments on account are calculated

How much you have to pay on account is determined by your last self-assessment tax return bill (or first if it is the first time you are completing a self-assessment tax return). HMRC will expect you to pay the same amount for the following year, so 50% of your most recent tax return is due to be paid by 31 January and another 50% is to be paid by 31 July.

For example:

• Your total tax bill for the 2025/26 tax year was £10,000.
• This would need to be paid in full by 31 January 2027 as your balancing payment.
• In addition to this, you would also make your first payment on account towards the 2026/27 tax year of £5,000 on the same date.
• You would then pay a second payment on account of £5,000 by 31 July 2027.
• If your tax bill for 2026/27 remains the same at £10,000, your payments on account for the following year would again total £10,000, split into two £5,000 instalments due in January and July 2028.
• If your tax bill increases to £12,000 for 2026/27, you would pay a balancing payment of £2,000 by 31 January 2028, plus £6,000 as your first payment on account towards 2027/28, followed by a further £6,000 on 31 July 2028.
• If your tax bill is lower for 2026/27, you may either pay reduced payments on account or receive a refund after your final liability is calculated.

Do I have to pay HMRC payments on account?

Although the payments on account system is intended to help taxpayers pay their bill easier, due to the deadlines, that may not always be the case and it can be a challenge for some to pay in advance. In most cases, it’s not possible to opt-out of payments on account however there are some exemptions:

• You are automatically exempt if over 80% of your income is taxed at source
• You are automatically exempt if less than 80% of your income is taxed at source but your personal tax bill is less than £1,000
• You can request to have your personal tax deducted through your PAYE tax code where your personal tax bill is less than £3,000

Can I reduce my payments on account?

Whilst it is possible to reduce the amount you have to pay on account, this is only recommended where you know your personal tax liability will be less this year than the previous year (we would advise you to speak to your accountant first before doing this). It is important to understand that reducing your payment on account will not reduce your overall tax bill. Should you underestimate your tax bill for the year, not only will you have to pay the remainder but HMRC will charge you interest on the outstanding amount.

How to reduce payments on account

If you are sure you would like to reduce the amount you need to pay on account, you can use one of two methods:

• You can log into your online Government Gateway account, select the option to view your latest self-assessment tax return and then select ‘reduce payments on account’. This is by far the simplest way.
• Alternatively, you can also apply by post by completing the SA303 form and sending it to HMRC

How to make payments to HMRC

There are a number of ways you can settle your self-assessment tax return bill but be mindful of how long they may take to transfer your funds across to HMRC, as missing the deadlines will result in penalties. You should also be aware that you can no longer pay at the post office, but the following methods are still available:

• Online or telephone banking
• CHAPS
• Pay online with a debit or corporate credit card (a non-refundable fee is charged if you pay by corporate credit card and you cannot pay using a personal credit card)
• Use a paying-in slip from HMRC to pay at a bank or building society (this is only available to those who still receive paper statements from HMRC)
• Bacs
• Set up a direct debit with HMRC so that it is automatically taken care of for you
• By cheque through the post to HMRC

How to check your payments on account

Being able to have access to an overview of your tax liability is always useful. You are able to regularly check the status of your tax affairs through your personal Government Gateway account. Once you have logged in, you’ll be able to view your last self-assessment tax return. Select the option to view and you’ll also see more options to view statements which is where you’ll be able to see any payments on account you’ve already made, as well as the payments you need to make towards your next bill if applicable.

More on Self-Assessment Tax Return

If you need help completing your self-assessment tax return, as well as find ways to reduce your overall tax bill, please see our Self-Assessment Tax Return service page. Or if you’re ready to hire a new accountant, please get in touch by calling or through the online form below.