Payments on account explained

The rule in one paragraph

HMRC says payments on account are "payments towards your next tax bill (including Class 4 National Insurance if you're self-employed)". There are two of them. Each is half of the tax you owed last year. They are due by midnight on 31 January and 31 July. After the year ends, HMRC compares what you paid in advance with the real bill. If you paid too little, you pay the rest as a balancing payment on the next 31 January. If you paid too much, you may be able to claim a refund.

When you do not have to make them

You must make the two payments unless either of these is true:

• the tax you owed last year through self assessment was less than £1,000
• last year you paid more than 80% of the tax you owed outside self assessment, for example through your tax code at a job

So a sole trader whose 2025/26 bill was £900 makes no payments on account for 2026/27. They just pay the £900 by 31 January 2027. Someone with a full-time job and a small side business, whose PAYE covers more than 80% of their tax, is in the same position.

What is included

Payments on account cover income tax and Class 4 National Insurance. They do not cover everything. GOV.UK says the balancing payment "will also include anything you owe for capital gains or student loans". So student loan repayments and capital gains tax are paid in full in January, not in advance. Voluntary Class 2 National Insurance is not included either.

Worked example: the first year

Sam is a sole trader in England who started in 2025/26. It is Sam's first self assessment return, so Sam has made no payments on account before. Sam's profit for 2025/26 is £32,000.

Because there were no payments on account, the whole £5,051.80 is the balancing payment. On top of that comes the first payment on account for 2026/27, which is half of £5,051.80.

Sam then pays the second payment on account of £2,525.90 by 31 July 2027. That is £10,103.60 in about six months, for a single year's bill of £5,051.80 plus half of next year in advance. This is exactly what GOV.UK's own example shows: in the first year you pay "the full amount of your tax calculation" and "your first payment on account towards your next bill".

Worked example: the year after

In 2026/27 Sam's profit rises to £36,000. The 2026/27 rates for England, Wales and Northern Ireland are the same as 2025/26, so:

Sam already paid £2,525.90 twice towards this, which is £5,051.80. The balancing payment is the difference.

Then £3,045.90 again by 31 July 2028. Once you are in the cycle, the January bill is much smaller than the first one, as long as your profit does not jump.

If your profit falls

Payments on account are based on last year. If you know this year's bill will be lower, you can ask HMRC to reduce them, online through your account ("Reduce payments on account") or by post with form SA303. Be careful. If you reduce them too far and the real bill is higher, HMRC charges interest on the difference. The late payment interest rate is 7.75% from 9 January 2026.

If you earn less than estimated and your payments on account were more than the final bill, you may be able to claim a refund.

If your profit rises

You do not need to do anything until January. But the balancing payment will be bigger, and so will the next payments on account, because both are based on the higher figure. A rise in profit hits you twice in the same January. Setting aside a share of each month's profit stops that being a shock. Our how much to save guide gives percentages for common profit levels.

Common questions

Can I pay early?

You can set up a Budget Payment Plan to pay weekly or monthly by Direct Debit towards your next bill. It is a good way to avoid one large January payment.

Where do I see my payments on account?

Sign in to your HMRC online account, view your latest return and choose "View statements".