Payments on account are two advance payments towards next year's Self Assessment bill, each normally half of last year's tax, due by 31 January and 31 July. They are not needed if last year's bill was under £1,000 or more than 80% was collected at source. A first-year client can face last year's full bill plus the first payment on account on 31 January, so warn them early.
Key takeaways
- Each payment on account is normally half of last year's Self Assessment bill, including Class 4 National Insurance, and they fall due on 31 January and 31 July.
- No payments on account are required if last year's bill was under £1,000, or if more than 80% of the tax was collected at source, for example through PAYE.
- On 31 January 2027 many clients pay the 2025 to 26 balancing payment and the first 2026 to 27 payment on account together, which is the January shock.
- A reduction can be claimed online or on form SA303, but if the final bill turns out higher, HMRC charges interest on the shortfall; the late payment rate has been 7.75% since 9 January 2026.
- Warn affected clients in November with their own figures, not a generic newsletter, and agree who will claim any reduction and why.
What are payments on account?
Payments on account are advance payments towards a client's next Self Assessment tax bill. GOV.UK's guide to understanding your Self Assessment bill explains that each payment is half of the tax owed for the previous year, and includes Class 4 National Insurance for the self-employed. They are due by midnight on 31 January and 31 July.
If the advance payments turn out to be less than the actual bill, the client pays the difference as a balancing payment by 31 January after the end of the tax year. If they turn out to be more, the excess is set against the next bill or refunded.
The idea is simple. The experience, for a client who has never come across it, is not. They file a return showing £6,000 of tax and are then asked for £9,000. Most of the explaining an accountant does in January is about that gap.
It helps to tell clients that payments on account are not an extra tax. Over time, they simply move the payment date earlier. A client whose income stays steady pays roughly the same total each year; it is only the first year, or a year when income jumps, that feels like paying twice. If income falls, the overpayment comes back as a credit or refund once the return for that year is filed.
Who has to make payments on account?
Payments on account apply to Self Assessment taxpayers unless one of two exceptions applies. According to GOV.UK, a client does not have to make them if:
- last year's Self Assessment bill was less than £1,000, or
- more than 80% of last year's tax was already paid at source, for example through a PAYE tax code or tax deducted by a bank.
So the clients who need a warning are mostly sole traders, partners, landlords and people with significant untaxed income such as dividends or rental profit. Salaried clients who file a return only for a small amount of extra income usually fall under one of the exceptions.
Capital Gains Tax and student loan repayments do not go into payments on account. They are paid with the balancing payment, which is why a client who sold a second property can face a large January bill even when their payments on account were correct.
What lands on 31 January 2027?
For many clients, 31 January 2027 carries two items at once:
- the balancing payment for 2025 to 26: the 2025 to 26 bill minus any payments on account already made in January and July 2026, plus any Capital Gains Tax and student loan repayments, and
- the first payment on account for 2026 to 27: half of the 2025 to 26 bill.
The second payment on account for 2026 to 27 follows on 31 July 2027.
Clients who have been in the system for years usually cope, because their payments on account roughly track their income. The clients who need careful handling are:
- New sole traders and landlords filing their first return with tax above £1,000.
- Clients whose profits jumped, because the balancing payment and the new payment on account both rise.
- Clients who left PAYE during the year, who may cross the 80% test for the first time.
These are the people to contact in November, while there is still time to save, not in late January. Our Self Assessment document collection plan covers getting their records in early enough to give them a figure.
A worked example: a first-year sole trader
Take an illustrative client, Priya, who left employment in April 2025 to work as a freelance copywriter. The figures are made up.
- 2025 to 26 Self Assessment bill (Income Tax and Class 4 National Insurance on her profits): £6,000
- Payments on account already made for 2025 to 26: none, because it is her first year
By 31 January 2027, Priya owes the full £6,000 for 2025 to 26 plus a first payment on account for 2026 to 27 of £3,000: £9,000 in total. By 31 July 2027, she owes the second payment on account of £3,000.
Now suppose Priya's 2026 to 27 profits are lower because she took three months off. Her accountant estimates the 2026 to 27 bill at about £4,000. They could claim to reduce each payment on account to £2,000, cutting January to £8,000 and July to £2,000.
If the estimate is wrong and the final 2026 to 27 bill is £5,000, she has underpaid each instalment by £500. HMRC charges interest on each shortfall from its original due date. At the current late payment rate of 7.75%, if the rate did not change and she paid on 31 January 2028, that would be roughly £39 on the January shortfall and £19 on the July one, about £58. Small, but it shows why a reduction needs a real estimate behind it, not a hope.
When should you reduce payments on account?
A client can ask HMRC to reduce payments on account if they expect the next bill to be lower. GOV.UK says this can be done online through the client's account, by selecting the latest return and choosing to reduce payments on account, or by sending form SA303. If the bill turns out higher than the reduced payments, HMRC charges interest on the difference.
The decision table below is a practical starting point. It is general guidance for discussion with the client, not a rule.
| Client situation | Reduce? | What to check first |
|---|---|---|
| Business ceased or income clearly falling, with figures to show it | Usually yes | Management accounts or bookkeeping to date |
| Last year included a one-off item, such as a large dividend | Often yes | That the item will not recur this year |
| Income uncertain, no data yet for the year | Be cautious | Whether a part-year estimate is reliable |
| Income rising | No | Consider extra saving instead |
| Client simply cannot afford January | Not on that ground alone | Whether HMRC Time to Pay is more suitable |
| Bill expected under £1,000 or more than 80% taxed at source | Possibly to nil | That the exception will genuinely apply |
Write down the basis for any claim. If HMRC asks, or the estimate proves wrong, the file should show why the reduction looked reasonable at the time.
What does it cost if a client pays late?
Payments on account that are paid late attract interest from the due date. HMRC's published interest rates for late and early payments show a late payment rate of 7.75% for Income Tax and National Insurance from 9 January 2026, set at Bank of England base rate plus 4 percentage points from 6 April 2025. The repayment interest rate is 2.75%. Both move when the base rate changes, so check the page before quoting a figure to a client.
GOV.UK’s Self Assessment penalties page also lists penalties on tax still unpaid 30 days, 6 months and 12 months after the deadline, so missing 31 January can cost more than interest alone.
For clients who cannot pay in full, it is usually better to contact HMRC about a payment plan before the deadline than to say nothing. Point them to the GOV.UK guidance on difficulties paying HMRC, and check eligibility and terms for their situation.
How should you warn clients before January?
A generic "remember your January tax bill" email is easy to ignore. The warning that works is short, personal and early. A practical sequence:
- November: identify clients with likely first-year bills, big profit changes or no payments on account history. Send each one their estimated 31 January and 31 July amounts.
- Early December: once returns are drafted, confirm the actual figures and discuss any reduction.
- Early January: send the final amounts with HMRC payment details and the payment reference.
- Late January: a reminder to anyone who has not confirmed payment.
- Early July: a reminder about the second payment on account.
Explain it in one sentence the client can repeat: "You're paying last year's tax, plus half of this year's in advance, because you're now self-employed." Most clients accept that once they understand it. What they resent is finding out on 30 January.
How Zaquil handles payments on account reminders
The hard part of payments on account is not the calculation. It is getting each affected client a personal figure early, then reminding them twice a year without staff doing it by hand. Here is how a practice runs it in Zaquil.
Recurring jobs for January and July. The firm sets up recurring jobs for each Self Assessment client: the return, the 31 January payment and the 31 July payment on account, each with a deadline and a checklist. A kanban board shows which clients have had their figures and which have not.
Client portal. The client opens a branded secure portal and sees a short message with their 31 January and 31 July amounts, approves and e-signs the return, and answers a two-question questionnaire if a reduction is being considered: expected income this year and any one-off items last year.
Automations. Rules send the January amounts in early January, a reminder on 20 January to anyone who has not confirmed payment, and a July reminder in early July. Confirmed replies move the job to done.
One inbox. Replies by email, SMS or WhatsApp land in one inbox on the client record, and AI reply drafts from the firm's own knowledge base help staff answer "why is my bill so high?" consistently.
See the setup on the accounting and tax solution page or check Zaquil pricing: plans from $19 a month, with a 14-day free trial and no card needed to start.
Frequently asked questions
What are payments on account in Self Assessment?
Payments on account are two advance payments towards your next Self Assessment tax bill. Each is normally half of the previous year's bill, including Class 4 National Insurance if you are self-employed. They are due by midnight on 31 January and 31 July. Any difference between the payments and the actual bill is settled by a balancing payment the following January.
Who does not have to make payments on account?
According to GOV.UK, you do not have to make payments on account if your last Self Assessment bill was less than £1,000, or if you paid more than 80% of last year's tax at source, for example through your PAYE tax code or tax deducted by your bank. Many salaried people who file a return for a small amount of extra income fall into one of these exceptions.
Why is my first January tax bill so high?
In your first year, you have made no payments on account, so on 31 January you pay the whole of last year's bill plus the first payment on account for the current year, which is half of last year's bill. That can make the January payment about one and a half times the tax on your return. The second payment on account follows on 31 July.
What is due on 31 January 2027?
For most Self Assessment taxpayers, 31 January 2027 is the deadline for the balancing payment for the 2025 to 26 tax year and the first payment on account for 2026 to 27. The balancing payment includes any Capital Gains Tax and student loan repayments. The second payment on account for 2026 to 27 is due by 31 July 2027.
Do payments on account include Capital Gains Tax?
No. Capital Gains Tax is not included in payments on account, and neither are student loan repayments. They are paid with the balancing payment by 31 January after the end of the tax year. That is why a client who sold a second property or shares can face a large January bill even if their payments on account were set correctly.
How do I reduce my payments on account?
If you expect your next tax bill to be lower, you can ask HMRC to reduce your payments on account. GOV.UK says you can do this online by signing in to your account, selecting your latest return and choosing to reduce payments on account, or by sending form SA303 to HMRC.
What happens if I reduce payments on account too much?
If your actual bill turns out higher than your reduced payments, HMRC charges interest on the difference from the original due dates. The late payment interest rate has been 7.75% since 9 January 2026, but it changes with the Bank of England base rate. Reducing only when you have a realistic estimate of lower income keeps that risk small.
What interest does HMRC charge on late payments on account?
HMRC charges late payment interest from the due date until the payment is made. Its published rate for Income Tax and National Insurance has been 7.75% since 9 January 2026, set at base rate plus 4 percentage points from 6 April 2025. The rate moves when the base rate changes, so check GOV.UK for the current figure before calculating.
Can I pay my January tax bill in instalments?
If you cannot pay in full, you may be able to set up a payment plan with HMRC, often called Time to Pay. It is usually better to contact HMRC before the deadline than after. Eligibility and terms depend on your circumstances, so check the GOV.UK guidance on difficulties paying HMRC or speak to your accountant about the options.
When should accountants warn clients about payments on account?
November is a sensible time to contact clients most likely to be surprised: first-year sole traders and landlords, clients whose profits rose sharply and clients who left PAYE. Send each their estimated 31 January and 31 July amounts. Confirm the figures once the return is drafted, then send payment details in early January and a reminder before the deadline.
Are payments on account the same as paying tax in advance?
Yes, in effect. Payments on account are advance payments towards the current tax year, based on the previous year's bill. If your income falls, you may have paid too much and will get the excess back or set against the next bill. If your income rises, you will pay the difference as a balancing payment the following January.
Do landlords have to make payments on account?
Landlords follow the same rules as other Self Assessment taxpayers. If their last bill was £1,000 or more and less than 80% of their tax was collected at source, they make payments on account on 31 January and 31 July. A landlord with a salaried job may have much of their tax collected through PAYE, so check the 80% test for each client.
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