Receiving your first Self Assessment tax bill can come as a surprise. Receiving a second bill for tax you haven't even earned yet can feel even more confusing.

That's exactly what payments on account are.

Every year, thousands of taxpayers wonder why HMRC is asking them to pay next year's tax before the year has even finished. It often feels like you're being charged twice, but that's not what's happening.

Payments on account are simply advance payments towards your next Self Assessment tax bill. They're based on what you paid last year and are designed to spread your tax across the year instead of collecting it all at once.

Once you understand how the system works, it becomes much easier to plan ahead and avoid unexpected bills.

What are payments on account?

Payments on account are advance payments towards your next year's Income Tax and Class 4 National Insurance bill.

Rather than waiting until after the tax year has ended, HMRC estimates what you are likely to owe based on your previous year's tax bill.

Instead of paying everything in one go, you usually make two instalments:

  • 31 January following the end of the tax year
  • 31 July in the same calendar year

Those payments are then deducted from your final tax bill once your next Self Assessment return has been submitted.

💡 RIFT Recommends: Think of them as instalments! Many people believe payments on account are an extra tax bill - but they aren't. They're actually advance instalments towards your next bill. When your tax return is completed, HMRC compares what you've already paid with what you actually owe. If you've paid too much, you'll normally receive a refund or have the surplus credited towards future tax.

 

Why does HMRC ask for payments on account?

Self-employed income can vary from month to month.

Rather than waiting until after the tax year ends to collect all the tax due, HMRC spreads the payments across the year to make collection more manageable.

The system also reduces the risk of taxpayers facing one very large bill every January.

Although it can feel frustrating when you first encounter it, payments on account are designed to help keep tax payments closer to the time the income is earned.

Who has to make payments on account?

You'll usually need to make payments on account if:

  • Your Self Assessment tax bill is more than £1,000
  • Less than 80% of your tax has already been collected through PAYE or another source

Payments on account usually apply to:

  • Sole traders
  • Self-employed workers
  • Freelancers
  • Contractors
  • Landlords with taxable rental income
  • People with significant untaxed income

They generally cover:

  • Income Tax
  • Class 4 National Insurance contributions

They do not normally cover:

  • Capital Gains Tax
  • Student Loan repayments
  • Class 2 National Insurance (where applicable)
  • Any balancing payment

If payments on account apply to you, HMRC will calculate them automatically and show them in your online Self Assessment account.

How to fill in a Self Assessment Tax Return

Tax returns can be very complicated - try our 'How To' guide, covering everything you need to know about filling your self assessment.

Self Assessment Guide

 

How are payments on account calculated?

HMRC uses your previous year's tax bill to estimate what you'll owe next year.

Each payment is usually 50% of the previous year's Income Tax and Class 4 National Insurance liability.

The first payment is due on 31 January, alongside any balancing payment for the previous tax year.

The second payment is due on 31 July.

Once you've submitted your next tax return, HMRC compares:

  • What you've already paid
  • What you actually owe

If there's a difference, it will either be collected as a balancing payment or refunded.

Payments on account example

Let's say your Income Tax and Class 4 National Insurance bill for 2025/26 is £6,000.

HMRC assumes your income will be similar during 2026/27.

You'll therefore make:

  • 31 January 2027: £3,000 payment on account
  • 31 July 2027: £3,000 payment on account

When you complete your 2026/27 tax return:

  • If your actual tax bill is £6,400, you'll pay a balancing payment of £400.
  • If your actual tax bill is £5,200, you've already paid too much and the difference can usually be refunded or credited against future tax.

This is why payments on account are estimates rather than fixed amounts.

What is a balancing payment?

A balancing payment is the difference between:

  • What you've already paid through payments on account
  • Your actual tax bill for the year

If your income increases, you may need to pay an additional balancing payment.

If your income falls, you've probably already paid too much and could be due money back.

Understanding the difference between payments on account and balancing payments helps remove much of the confusion around Self Assessment.

What if my income falls?

One of the biggest concerns people have is paying tax based on earnings they no longer receive.

The good news is that payments on account aren't fixed forever.

If you know your income will be significantly lower, you can ask HMRC to reduce your payments on account.

This is done through your online Self Assessment account or by submitting form SA303.

💡 RIFT Recommends: : Only reduce payments if you're confident! It's important to be realistic. If you reduce your payments too far and your income doesn't fall as expected, HMRC can charge interest on the shortfall. If you're unsure, it's worth taking advice before making changes.

 

How do you pay payments on account?

You pay them in exactly the same way as your normal Self Assessment tax bill.

Payment options include:

  • Online or telephone banking
  • Direct Debit
  • BACS
  • CHAPS
  • Debit card
  • Corporate credit card
  • Bank or building society (where available)
  • Cheque

Most people choose online banking or Direct Debit as the quickest and simplest option.

What happens if you miss the deadline?

If you can't pay on time, don't ignore the problem.

HMRC charges interest on late payments and may apply additional penalties depending on how long the tax remains unpaid.

The earlier you contact HMRC, the more options you usually have.

In some circumstances you may be able to agree a Time to Pay arrangement, allowing you to spread the outstanding balance over a longer period.

Self Assessment deadlines

Discover when the key dates for filing, planning, and payments on account.

Self Assessment Deadlines

 

Common mistakes with payments on account

We regularly see people caught out by the same issues.

These include:

  • Assuming they've been taxed twice
  • Forgetting about the July payment
  • Reducing payments without enough evidence
  • Not budgeting for the January balancing payment
  • Ignoring HMRC letters until penalties begin

Understanding how the system works makes it much easier to avoid these surprises.

Cash basis or traditional accounting?

If your business accounts are relatively straightforward, you may be able to use the cash basis for Self Assessment.

This means you record income when it's actually received and expenses when they're paid, rather than when invoices are issued.

For many smaller businesses, this can make bookkeeping much simpler than using traditional accrual accounting.

The right option depends on your circumstances, so it's worth understanding both approaches before deciding.

How RIFT can help

Self Assessment involves far more than completing a tax return.

Understanding payments on account, balancing payments, allowable expenses and filing deadlines can feel overwhelming, particularly if it's your first year of self-employment.

Our experienced tax specialists help customers understand what HMRC is asking for, make sure returns are completed accurately and explain how future tax bills are likely to work, giving you confidence that everything has been handled properly.

Understanding the rules is one thing. Applying them to your own circumstances is where expert support can make a real difference.

Need support?

File your self assessment tax return online confidently with RIFT.

Get help now >

 

Frequently asked questions

Are payments on account the same as paying tax twice?

No. They're advance payments towards your next year's Income Tax and Class 4 National Insurance bill. When your next return is submitted, HMRC offsets what you've already paid against your final liability.

Do PAYE employees make payments on account?

Usually not. Most PAYE tax is collected automatically through your employer, although people with significant untaxed income may still need to make payments on account.

Can I reduce my payments on account?

Yes. If you expect your income and tax bill to be significantly lower than the previous year, you can apply to reduce them through your HMRC online account or by submitting form SA303.

What happens if I've paid too much?

If your payments on account exceed your actual tax bill, HMRC will normally refund the difference or credit it against future tax liabilities.

When are payments on account due?

The two annual deadlines are:

  • 31 January
  • 31 July

Missing either deadline can result in interest charges and, in some cases, additional penalties.

Do payments on account include Capital Gains Tax?

No. Payments on account generally only cover Income Tax and Class 4 National Insurance. Capital Gains Tax is calculated separately.