The bit that catches almost everyone out the first time
If this is your first year filing a Self Assessment return with a meaningful tax bill, there's a good chance you've just been asked to pay considerably more than the tax you actually owed for the year — sometimes as much as 150% of it. That's not a mistake. It's called payments on account, and understanding it now will save you a nasty shock every January from here on.
When payments on account kick in
HMRC requires payments on account when two things are both true:
- Your Self Assessment bill (income tax plus Class 4 National Insurance — this test excludes Capital Gains Tax, Class 2 NIC and student loan repayments) is more than £1,000, and
- Less than 80% of your total tax for the year was already collected at source (for example, through PAYE if you also have an employed job).
If both apply, you're not just paying this year's bill — you're also prepaying half of what HMRC expects you to owe next year, based on this year's figure.
How the split actually works
Each payment on account is 50% of your previous year's total Self Assessment liability. There are two of them:
- 31 January — your balancing payment for the year just finished, plus your first payment on account for the year ahead.
- 31 July — your second payment on account for the year ahead.
This is exactly why the first year feels so painful: on 31 January you can be paying last year's full bill, plus 50% of an estimate of this year's bill, in one go. From year two onwards it settles into a steadier rhythm, since you're no longer catching up from a standing start.
A worked example
Say your Self Assessment bill for 2025/26 was £6,000. On 31 January 2027 you'd pay that £6,000 balancing payment, plus a first payment on account of £3,000 (50% of £6,000) towards 2026/27 — £9,000 in total. Then on 31 July 2027 you'd pay a second £3,000 payment on account. If your actual 2026/27 bill turns out to be £6,000 again, you've already paid it in full through the two payments on account, and January 2028 is just the cycle repeating with the next year's estimate.
What if your income drops?
If you know your income (and therefore your tax bill) is going to be lower than last year — maybe you've taken on fewer clients, or a big one-off piece of work isn't repeating — you don't have to keep paying on account based on the old, higher figure. You can apply to reduce your payments on account, either through your HMRC online account or by submitting form SA303.
Be careful with this one though: if you reduce it too far and your income doesn't actually drop as much as expected, HMRC will charge interest on the shortfall. It's worth having a realistic estimate before you apply, not just an optimistic one.
The upside
Once you're used to the rhythm, payments on account aren't the enemy — they spread your tax liability across the year in two more manageable chunks rather than one large annual shock, and if your income is fairly stable year to year, you're never really behind. The trick is just knowing it's coming, especially in year one, and budgeting for both payments rather than being surprised by the second one in July.
If you'd like us to check whether your payments on account are set at the right level for where your income actually is this year, that's a five-minute job for us — and it can save you either a painful overpayment or an unwelcome surprise.