Payments on account are tax payments made twice a year by Self Assessment taxpayers to spread the cost of the upcoming year’s tax.
It’s important to keep them in mind when planning your finances – though there are a few options available when it comes to paying.
Our full guide looks at key Self Assessment payment on account dates, how to make a payment, and more.
What is payment on account?
Your payments on account are calculated based on your previous year’s tax bill. In other words, HMRC is making a prediction about your future income based on your past income.
They’re due in two instalments – the deadlines are 31 January and 31 July.
This means the first instalment is due on the same day you submit your Self Assessment tax return and clear your bill for the previous year, so it’s important you have enough money set aside.
“Having these payments on account due means you need to keep on top of your cash flow,” says Pauline Green, Head of Product Compliance at accounting software firm QuickBooks. “Using accounting software can help you understand and manage your cashflow to make sure you have the funds to make these payments to HMRC.”
What does payment on account mean?
The payment on account meaning is simple – it allows self-employed people to make two advance payments towards their tax bill each year.
HMRC designed payment on account to help those who complete a Self Assessment stay on top of their payments.
Whereas employed people are taxed at source through PAYE, Self Assessment taxpayers don’t pay their bill until the January after the end of the previous tax year.
Payment on account catches out people who are new to the Self Assessment process. It’s easy to see why – after the annual rush to complete a tax return, it’s not fun to be presented with a bill that’s a lot higher than you’re expecting.
And while in theory payment on account helps taxpayers spread out their bill, it can lead to more financial hardship for those who’re already having difficulty paying.
Payment on account examples – how is it calculated?
Each of the two payments on account will normally be 50 per cent of your previous tax bill.
Here’s an example calculation:
Jeremy, a self-employed cleaner, has a £4,500 tax bill for the 2024-2025 tax year. He made two payments on account last year of £1,200 each (£2,400 in total).
The total tax to pay by midnight on 31 January 2026 is £4,350. This includes:
- a ‘balancing payment’ of £2,100 for the 2024-2025 tax year (£4,500 minus £2,400)
- the first payment on account of £2,250 (half Jeremy’s 2024-2025 tax bill) towards his 2024-2025 tax bill
- he has to pay his second payment on account of £2,250 by midnight on 31 July 2026
If his tax bill for the 2025-2026 tax year is more than £4,500 (the total of your two payments on account), he will need to make a ‘balancing payment’ to settle the bill by 31 January 2026.
Payments on account include Class 4 National Insurance Contributions where applicable, but not student loan repayments or capital gains tax.
You won’t need to make a payment on account to HMRC if:
- your tax bill for the previous year was less than £1,000 after PAYE
- 80 per cent or more of your tax was deducted at source through PAYE
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How to pay your payment on account
You’ll need to use your payment reference when you pay your payment on account. This is your Unique Taxpayer Reference (UTR) number followed by the letter ‘K’.
Here’s how you can pay your Self Assessment payment on account:
- online using a debit card or corporate credit card
- bank transfer (online or phone banking) or Direct Debit (make sure you leave enough time for a Direct Debit to go through – five working days the first time you set one up, or three the next time you pay using the same bank details)
- at your bank or building society (if you still get paper statements from HMRC, or you have the paying-in slip HMRC sent you)
- by cheque through the post
Read more about payment on account on the government website.
If you file your return on paper, you’ll get a paper bill along with a Bank Giro form that you can use to make a payment.
HMRC is committed to moving as much of the tax paying process online as possible. This means that from April 2026, Self Assessment taxpayers will need to keep digital records and send returns using the appropriate software.
Can you reduce payments on account?
If you file a Self Assessment, your income can fluctuate from year to year. If you think that your income for the next tax year will be lower than the previous tax year, you can apply to have HMRC reduce payment on account for your business.
“If you think your tax bill is going to be lower than last year, you can ask HMRC to reduce your payments on account,” says Pauline.
“You can reduce payment on account by logging into your online HMRC account and clicking ‘Reduce payments on account’. Or, you can send form SA303 to your tax office.”
In practice, many people choose to do this if they’re having trouble paying their tax bill. Some reduce their HMRC payment on account, presuming they’ll be in better financial shape later and that they’ll find it easier to settle the remainder of their bill.
But you should think carefully about this – if your income is the same or higher in the next tax year, you’ll still have to pay the same amount, meaning you’ve only delayed the burden.
And if you reduce your payment on account and it then turns out you’ve underpaid, you’ll have to pay interest on the outstanding amount. This can significantly increase your tax bill.
What happens if you overpay payment on account?
On the other hand, if you overpay, you’ll receive an HMRC payment on account refund.
You can use form SA303 to reduce your payments on account and request a refund. Credit should then show up in your Self Assessment account, which you can then request to be repaid either online or by calling HMRC.
“This is another point where accounting software can help you keep on top of your finances and see quickly if you are in a potential overpayment situation,” says Pauline. “This will enable you to complete your Self Assessment before the deadline and get your refund from HMRC earlier.”
How to check your payments on account
As well as using a payment on account calculator, you can check your payments on account during the year by signing in to your personal tax account using your Government Gateway ID and selecting the option to view your latest Self Assessment return.
Click ‘View statements’ and you’ll see any payments on account you’ve already made, alongside payments you need to make towards your next tax bill.
What happens if you can’t afford payment on account?
If you’re having trouble paying, don’t ignore the situation. It’s important that you get in touch with HMRC – you might be able to use HMRC’s Time to Pay service to set up a payment arrangement.
Paying your tax bill in instalments – what you need to know
You can make regular payments towards your tax bill with a budget payment plan if you’d like to. This can take the pressure off setting aside enough for two tax bill payments a year.
You also have the option to pause these regular payments for up to six months if you need to.
To set this up, you just need to sign into your HMRC account and select the ‘budget payment plan’ when you choose to make Direct Debit payments.
Check which payment plan is right for you with the government’s handy tool.
“You can be a profitable business but if you don’t have control of your cash flow and are unable to pay key creditors such as HMRC and banks, your business could run into problems,” says Pauline.
Payment on account – 5 key takeaways
- Payments on account are tax payments made twice a year by Self Assessment taxpayers
- The payment on account deadlines are 31 January and 31 July
- The amount you pay is calculated based on your previous year’s tax bill
- You can ask HMRC to reduce your payments on account if you think your tax bill is going to be lower than the previous year
- If you overpay due to fluctuating income, you can request a refund from HMRC
Payment on account FAQs
Who pays payment on account?
Payment on account is paid by Self Assessment taxpayers.
This is usually self-employed people, or those who have a significant amount of untaxed income such as landlords.
What is a balancing payment?
A balancing payment is the final payment you make to HMRC to settle your tax bill for a specific tax year.
You only need to pay a balancing payment if your tax bill is different from the amount you’ve already paid through payment on account.
What does it mean when a payment is on account?
When a payment is ‘on account’, it means you’re making an advance payment towards your future tax bill.
HMRC uses payment on account to help Self Assessment taxpayers spread out their tax payments.
Payments on account are due in two equal instalments (on 31 January and 31 July) and usually represent an estimate of what you’ll owe for the current tax year.
Is payment on account compulsory?
Payment on account is compulsory for most Self Assessment taxpayers.
If your last tax bill was over £1,000 and less than 80 per cent of your tax was deducted at source (through PAYE), HMRC will automatically enrol you in payment on account.
If you’re unsure about anything to do with payment on account, you should get in touch with an accountant or HMRC directly for guidance. Please use this article as a guide only.
More tax guides for small businesses
- What can I claim as self-employed expenses on my tax return?
- How long do small businesses need to keep tax records?
- Guide to income tax for the self-employed
- What is business insurance?
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