Tax year: 2026/27 | Last reviewed: 2 October 2026
If you are self-employed, a landlord or have other untaxed income, HMRC usually asks you to pay tax in advance through payments on account. They are the most common reason people are shocked by their first tax bill, so it is worth understanding how they work.
What are payments on account?
Payments on account are two advance instalments towards next year’s tax bill. Each one is half of your previous year’s Self Assessment liability (Income Tax and Class 4 NI, but not capital gains tax or student loan repayments).
- First payment on account: 31 January during the tax year
- Second payment on account: 31 July after the tax year
- Balancing payment: 31 January after the tax year, for anything still owed
When do they apply?
You have to make payments on account unless:
- your last Self Assessment bill was less than £1,000, or
- more than 80% of your total tax was already collected at source, for example through PAYE.
Why the first January bill is so big
Take a sole trader who starts trading in 2025/26 and owes £6,000 for that year. On 31 January 2027 they pay:
- £6,000 balancing payment for 2025/26, plus
- £3,000 first payment on account for 2026/27
That is £9,000, or 150% of the year’s tax, in one go. A further £3,000 follows on 31 July 2027. From the second year onwards the pattern evens out, but only if profits stay stable.
Can you reduce payments on account?
Yes. If you expect your income to fall, you can apply to reduce them online or on form SA303. You need a sensible reason, such as lower profits, higher pension contributions or a source of income ending. If you reduce them too far, HMRC charges interest on the shortfall, currently 7.75% a year, from the original due dates. Reducing them is fine, guessing low to delay tax is not.
Budgeting tips
- Put aside a fixed percentage of every payment you receive into a separate savings account. For a basic rate sole trader, 20% to 25% of profit is a common starting point. Our guide on how much a sole trader should save for tax explains how to work out yours.
- File early. Knowing your figure in the autumn gives you months to plan.
- Pay by Direct Debit or set up a budget payment plan with HMRC to pay weekly or monthly towards January.
- Keep your bookkeeping up to date so you can spot a big change in profit during the year.
Payments on account and Making Tax Digital
MTD for Income Tax requires quarterly updates from April 2026 for people with qualifying income over £50,000, but it does not change the payment dates. You still pay on 31 January and 31 July. The upside is that quarterly figures give a running estimate of your bill. Read MTD quarterly updates explained.
FAQs
Do employees pay payments on account?
Usually not, because most of their tax is collected through PAYE. If an employee has significant rental or other untaxed income, they can fall into the regime.
What if my second payment on account is more than my actual bill?
HMRC refunds the overpayment once your return is filed, or you can leave it on account against your next bill.
Can I pay my underpayment through my tax code instead?
If you are employed or receive a pension, owe less than £3,000 and file online by 30 December, HMRC can collect the balancing payment through your tax code. Payments on account still apply separately.
Need help with your return? See our self-employed tax return service.
Talk it through with Digivolve
We forecast your January and July payments as part of every tax return, and tell you when it is safe to reduce them.
This article is general information based on the rules for the 2026/27 tax year as at October 2026. It is not personal tax advice. Rates and thresholds can change, so please speak to us before acting.