Payments on Account Explained: Why January Bills Jump

Payments on account are two advance payments towards your next Self Assessment bill, each normally half of last year's bill, due by 31 January and 31 July. They apply if your last bill was £1,000 or more, unless more than 80% of your tax was already taken at source.

They are the reason so many self-employed people are shocked by their first big January bill. Once you understand the pattern, though, the dates become predictable and easy to save for. This guide explains how payments on account work, who has to make them, and how to plan for 31 January 2027.

Key takeaways

• Each payment on account is normally 50% of the previous year's Self Assessment bill.
• They are due by 31 January (during the tax year) and 31 July (after it ends).
• Your first January can include the balancing payment and the first payment on account together.
• You can apply to reduce them if you expect a lower bill, but interest applies if you under-reduce.
• They cover income tax and Class 4 National Insurance, not student loan or capital gains tax.

What a payment on account is

A payment on account is an instalment of tax paid before HMRC knows your final figure for the year. Because self-employed income is not taxed as it is earned, HMRC asks for advance payments based on your previous year, then squares up once your return is filed. The rules are on GOV.UK's payments on account page.

The Self Assessment payment calendar

Payment methods and bank details are on GOV.UK's pay your Self Assessment bill page. Allow time for bank transfers to clear before the deadline.

Who does not have to make them

You do not need to make payments on account if your last Self Assessment bill was less than £1,000, or if more than 80% of all the tax you owed for that year was collected at source — typically through PAYE on a job or pension. This is why someone with a salary and a small side business may never see them, while a full-time sole trader almost always will.

When reducing them makes sense

Payments on account are based on last year, so they can be too high if your income has dropped — for example after losing a major customer, taking time off, or moving from self-employment into a job part way through the year. In that case you can ask HMRC to reduce them, either through your online account or on form SA303, giving the reason.

The key is to base the reduction on real figures. Look at your income and expenses so far this year, estimate the rest cautiously, and work out the likely bill. If you reduce too far and the final bill turns out higher, HMRC charges interest on the difference from the original due dates. If your circumstances change again later in the year, you can revisit the claim. Where income is genuinely unclear, reducing by a smaller amount is often the safer choice.

Step by step: planning for 31 January

1. File your 2025/26 return early. Knowing the figure in the autumn gives you months to prepare.
2. Check your statement. Your online account shows the balancing payment and any payments on account due.
3. Consider whether this year's income is lower. If so, look at reducing your payments on account.
4. Set aside tax monthly. Moving a fixed percentage of income into a separate savings account smooths the peaks.
5. Pay by the deadline. Late payment triggers interest, and further penalties can follow if tax stays unpaid.
6. If you cannot pay, contact HMRC before the deadline about a Time to Pay arrangement rather than ignoring it.

Worked example (illustrative example)

"Jordan", an invented illustrative example, became self-employed as a gardener in 2025. Jordan's 2025/26 return shows a tax and Class 4 National Insurance bill of £4,000. Because this is Jordan's first year with a bill of £1,000 or more, no payments on account were made during 2025/26.

By 31 January 2027 Jordan must pay the £4,000 balancing payment plus a first payment on account for 2026/27 of £2,000 (half of £4,000): £6,000 in total. A second payment on account of £2,000 is due by 31 July 2027. If Jordan's 2026/27 bill turns out to be £5,000, the balancing payment on 31 January 2028 is £1,000, plus the first payment on account for 2027/28. Had Jordan filed in October and saved monthly, the £6,000 would not have been a surprise. The person and figures are invented to illustrate the mechanics.

Common mistakes

• Budgeting only for last year's bill. The first January usually needs about one and a half times as much.
• Reducing payments on account without evidence. Interest is charged if the final bill is higher.
• Forgetting the July payment. It is easy to miss when no return is due at the same time.
• Assuming student loan is included. It is added to the balancing payment.
• Filing at the last minute. Late filing leaves no time to arrange funds.

Take the surprise out of January

Our personal tax service starts from £180 per year and includes preparing your return, checking your payments on account and flagging when a reduction may be appropriate. If you have only just started trading, read our guide to the Self Assessment registration deadline; if you still use paper, see the 31 October paper return deadline; and if earlier years are outstanding, start with our catch-up plan.

Want to know what you will owe on 31 January 2027? Get in touch or see our pricing.