What a payment on account actually is
Payments on account are advance payments towards your next tax year's Self Assessment bill. HMRC requires them when your last tax bill was over £1,000 and less than 80% of your tax was collected at source (for example through PAYE). The idea is to spread your tax liability across the year rather than leaving one large bill in January, which mirrors how PAYE employees pay tax gradually through their salary.
Each payment on account is normally set at 50% of your previous year's Self Assessment tax bill (this excludes student loan repayments and Capital Gains Tax, which are collected separately). So if your 2024/25 tax bill was £6,000, HMRC will typically ask for two payments on account of £3,000 each for 2025/26: one by 31 January 2026 and one by 31 July 2026. Any difference between what you've paid on account and your actual bill for the year is settled as a balancing payment the following January.
Worked example: how the figures add up
Consider a self-employed graphic designer whose 2024/25 Self Assessment tax bill came to £5,000. Because this is over £1,000 and no tax was deducted at source, HMRC set two payments on account of £2,500 each for 2025/26. She paid £2,500 by 31 January 2026 alongside her balancing payment for 2024/25. Now, by 31 July 2026, she owes the second £2,500 payment on account.
If her actual 2025/26 tax bill turns out to be £6,500 once she files her return in early 2027, she will owe a balancing payment of £1,500 (the £6,500 bill minus the £5,000 already paid on account), due by 31 January 2027 — alongside the first payment on account for 2026/27. Conversely, if her income fell and her real 2025/26 bill was only £3,000, she will have overpaid by £2,000, which HMRC will refund or offset against future payments. This is why reviewing your figures before July matters: paying on outdated assumptions can tie up cash you may not owe.
What to do if your income has dropped
If your income for 2025/26 is genuinely lower than 2024/25 — perhaps a client contract ended or you reduced your hours — you can apply to HMRC to reduce your payments on account rather than paying the full amount calculated from last year's bill. This is done online through your Self Assessment account or by submitting form SA303.
Be cautious, though: if you reduce your payments on account too far and your actual tax bill turns out higher than expected, HMRC will charge interest on the shortfall from the original due date. It's sensible to prepare a realistic estimate of your 2025/26 profit before requesting a reduction, rather than guessing. If you're unsure how your take-home position compares to previous years, running your expected income through a take-home pay calculator alongside your accounts can help sense-check the numbers before you submit a change.
Budgeting for the July deadline and beyond
Many self-employed people find it easier to set aside a percentage of income throughout the year into a separate account, rather than facing two large lump sums in January and July. A common approach is to transfer a fixed proportion of each invoice paid — informed by your marginal tax rate and National Insurance position — into savings as soon as it lands.
If you also have PAYE income alongside self-employment, for example a part-time job, it's worth checking how the two interact, since your tax code and any employed earnings affect your overall liability and how much is already collected at source. Understanding your National Insurance calculation for the year is also useful context, since Class 4 contributions are usually included within your Self Assessment bill and therefore feed into your payments on account. Missing the 31 July deadline results in interest being charged on the outstanding amount from the day after it was due, so even if you can't pay in full, contacting HMRC promptly to discuss a Time to Pay arrangement is generally better than ignoring the deadline.
Limitations and when to get advice
This article explains the standard mechanics of payments on account as set out by HMRC, but individual circumstances vary — particularly if you have multiple income sources, significant Capital Gains Tax liabilities, or claim reliefs that change year to year. The figures used here are illustrative examples, not universal thresholds or predictions of what you personally will owe.
If your tax affairs are complex, or you're considering reducing your payments on account, it is worth speaking to an accountant or checking directly with HMRC, since incorrect reductions can lead to interest charges, while overpaying ties up cash unnecessarily.
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FAQ
Frequently asked questions
Short answers first. Open the question if you want the detail behind the result.
What happens if I don't pay my second payment on account by 31 July 2026?
HMRC will charge interest on the outstanding amount from the day after the deadline until it's paid. If you can't pay in full, contact HMRC as soon as possible to discuss a Time to Pay arrangement, as this can help avoid further penalties.
Can I reduce my payment on account if my income has fallen?
Yes, you can apply to reduce your payments on account online via your Self Assessment account or using form SA303. However, if you reduce them too much and your final bill is higher than the reduced amount, HMRC will charge interest on the shortfall from the original due date.
Do payments on account include student loan repayments or Capital Gains Tax?
No. Payments on account are based on your Income Tax and Class 4 National Insurance liability only. Student loan repayments and Capital Gains Tax are calculated and collected separately as part of your Self Assessment bill.
Will I always have to make payments on account?
Not necessarily. You're generally only required to make payments on account if your last Self Assessment tax bill was over £1,000 and less than 80% of the tax you owed was collected at source, for example through PAYE.
Sources
External links open the official source used to review this guide.