What Are HMRC Payments on Account?

Payments on account are advance payments towards your next Self Assessment tax bill. Instead of paying all of your tax in one lump sum after the end of the tax year, HMRC asks many self-employed people, landlords and others who complete a Self Assessment tax return to pay part of their next bill in advance. Each payment is usually based on 50% of the previous year’s tax bill, helping spread the cost across the year rather than paying it all at once.

When you submit your next tax return, HMRC compares what you have already paid with what you actually owe. If you have underpaid, you will need to pay the difference.  If you have paid too much, you will receive a refund or have the overpayment offset against future tax.

Key takeaways

• Payments on account are advance payments towards your next Self Assessment tax bill.
• They are usually paid in two instalments on 31 January and 31 July.
• Each payment is normally 50% of your previous year’s tax bill.
• You may have to make a balancing payment if your final tax bill is higher.
• If your income falls, you may be able to reduce your payments on account.
• They generally apply where your Self Assessment tax bill exceeds £1,000 and less than 80% of your tax is collected at source.

Who needs to make 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. 

Although payments on account are not complicated, they are notorious for catching people out, especially those completing their first Self Assessment tax return. Once you enter the payments on account system, HMRC will ask you to make advance payments towards your following year’s tax bill based on your previous liability.

This means your first January payment can be unexpectedly high. As well as paying any tax due for the previous tax year, you may also need to make your first payment on account, which is usually 50% of your previous year’s tax bill. You could therefore have paid your entire first year’s tax bill but still have an additional payment due towards your next tax bill.

Your second payment on account, which is the remaining 50% of your previous year’s tax bill, is due by 31 July. After both payments have been made, any remaining tax due will be settled through a balancing payment by the following 31 January. If you have paid too much tax, HMRC will either refund the excess or allow you to offset it against future tax liabilities.

When were payments on account introduced?

Payments on account were introduced for the 1996/97 tax year as part of the introduction of Self Assessment.  Rather than paying the entire amount in one lump sum after the end of the tax year, eligible taxpayers make two advance payments towards their next tax bill, helping to reduce the size of a single payment when their tax return is due. 

Is payments on account compulsory?

Yes, payments on account are compulsory if you meet HMRC’s qualifying criteria. You will usually need to make HMRC 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, such as through PAYE. You cannot opt out simply because you would prefer to pay your tax in one lump sum. However, if you expect your tax liability for the current tax year to be lower than the previous year’s, you can apply to reduce your payments on account or stop them altogether if you no longer meet the qualifying conditions.

How do payments on account work?

Payments on account are advance payments towards your next Self Assessment tax bill, based on your previous year’s tax liability. If you are required to make payments on account, HMRC will usually split the amount into two equal instalments: 50% is due by 31 January and the remaining 50% is due by 31 July. This can be confusing for first-time Self Assessment filers, as your first January payment may include both your outstanding tax bill for the previous year and your first payment on account towards the next one. Once both payments on account have been made, any remaining tax due is settled through a balancing payment.

Payment on account deadlines

Payments on account are due in two instalments each year:

• 31 January: The first payment on account (50% of your previous year’s tax bill), plus any balancing payment due for the previous tax year.
• 31 July: The second payment on account (the remaining 50% of your previous year’s tax bill).

Any remaining tax owed after your payments on account have been made must be paid as a balancing payment by the following 31 January deadline.

How are payments on account calculated?

Your payment on account is usually determined by your most recent self-assessment bill. If this is the first time you have entered the payments on account system, HMRC will use your latest tax bill to estimate your liability for the following tax year. This estimate will be paid in two equal instalments, with 50% due by 31 January and the remaining 50% due by 31 July.

To illustrate this, your total Self Assessment tax bill for the 2025/26 tax year is £10,000.
You would need to pay this in full by 31 January 2027.
On the same date, you would also make your first payment on account towards the 2026/27 tax year of £5,000 (50% of your previous year’s tax bill).
You would then make your second payment on account of £5,000 by 31 July 2027.

If your tax bill for 2026/27 remains £10,000, your payments on account have already covered it, so there is no balancing payment due. You would then make your first payment on account of £5,000 towards 2027/28 by 31 January 2028, followed by a second payment of £5,000 on 31 July 2028.

If your tax bill for 2026/27 increases to £12,000, you would have £2,000 remaining to pay as a balancing payment by 31 January 2028. On the same date, you would also make your first payment on account of £6,000 towards 2027/28, followed by a second payment of £6,000 by 31 July 2028.

If your tax bill for 2026/27 is lower than expected, you may be able to reduce your payments on account in advance or receive a refund if you have overpaid once your tax return has been submitted.

What is a balancing payment?

A balancing payment is the difference between your total Self Assessment tax bill and the payments on account you have already made.

If your final tax bill is higher than the amount you have paid on account, you must pay the remaining balance by 31 January following the end of the tax year. If you have paid too much, HMRC will either refund the overpayment or offset it against future tax liabilities.

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.
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

The risks of reducing payments on account too much

It is important to only reduce your payments on account if you are confident that your income and tax liability will be lower than the previous year. If your estimate is incorrect and you reduce your payments by too much, you will need to pay the shortfall as a balancing payment, which could result in an unexpected tax bill.

HMRC may also charge interest on any tax that remains unpaid, and penalties could apply if the reduction was made carelessly or without a reasonable basis.

What if I can’t afford my payment on account?

If you are unable to pay your upcoming payments on account in full by the deadline, you may be able to arrange a Time to pay agreement with HMRC. This allows you to spread your tax payments over an agreed period.

You should contact HMRC as soon as possible if you think you may be unable to meet the deadline. HMRC will consider individual circumstances, and arrangements are not guaranteed and are based on factors of how much tax you owe, your ability to pay and whether you have a history of paying on time.

Interest may still be charged while you are paying off the outstanding amount, so it is important to arrange a payment plan before the deadline where possible.

Can I get a payment on account refund?

If your payments on account are higher than your final Self Assessment tax bill, you may be entitled to a refund of the excess. This can happen if your income is lower than expected or your tax liability falls compared with the previous tax year.

Once your Self Assessment tax return has been submitted and your final tax liability has been calculated, HMRC will work out whether you have overpaid. If you have, the overpayment can either be refunded to you or offset against your next Self Assessment tax bill, depending on your circumstances and preferences.

If you know your income will be lower before your payments are due, you may also be able to reduce your payments on account in advance rather than waiting for a refund. However, you should only do this if you are confident your estimate is accurate, as underpaying could result in interest and a balancing payment.

How to check your payments on account

You can check the status of your Self Assessment account at any time through your 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.

Do payments on account include National Insurance?

Yes. Payments on account are based on your previous year’s Self Assessment liability, including Income Tax and Class 4 National Insurance where applicable. They do not include Capital Gains Tax or Student Loan repayments, which are paid as part of your balancing payment.

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.