What are payments on account?
Payments on account are one of the least intuitive parts of Self Assessment. People often meet them for the first time on a 31 January bill that is larger than last year’s tax, and assume someone has made a mistake. The official page is shorter than it looks; this guide unpacks it, with the same tests and the same January-plus-July shape, and points you to a calculator that uses those tests.
The official definition
HMRC describes payments on account as payments towards your next tax bill, including Class 4 National Insurance if you are self-employed. They help spread the cost by making payments in two instalments. Each payment is usually half of the tax you owed last year. The two payments are due by midnight on 31 January and 31 July.
You must make them unless either of two conditions is true. The first is that the amount of tax you owed last year was less than £1,000. The second is that last year you paid more than 80% of the tax you owed outside Self Assessment — HMRC’s examples are tax collected through a tax code, or tax a bank had already deducted from savings interest. Your Self Assessment statement or online account will show the amounts if you need to pay them.
Those tests are strict on the wording. “Less than £1,000” does not include a bill of exactly £1,000. “More than 80%” does not include a share of exactly 80%. If you are close to either line, use the figures on your statement rather than a rounded mental sum.
Relevant tax, and what is left out
The instalments are based on the tax that belongs in this system, including Class 4 National Insurance. Two important items are not built into payments on account. The official page says that Capital Gains Tax and student loan repayments (if you are self-employed) go on the 31 January balancing payment instead. If you add those items into a “half of last year” mental calculation, you will overstate the instalments and understate the January balancing amount.
The payments on account calculator treats “relevant tax” as last year’s Income Tax plus Class 4 National Insurance. It uses an optional box for tax paid outside Self Assessment only when it applies the 80% test, and an optional box for instalments already paid when it works out the balancing figure.
Balancing payments and a worked example
If you earn more than the amount that was used to estimate the instalments, you may still have tax to pay on top. HMRC calls that a balancing payment. If you earn less, you may be able to claim a refund. The balancing payment is worked out by deducting the payments on account you have already made from the total tax you owe, and it is due by midnight on 31 January the following year, together with anything you owe for capital gains or student loans.
The official page works through this with a 2023/24 bill of £3,000. In one version, two earlier payments of £900 have already been made, so the balancing payment is £1,200, the first new instalment is £1,500, and the January total is £2,700, with a second £1,500 due on 31 July. In the first-time version, no earlier instalments have been made, so January is the full £3,000 plus the first £1,500, which is £4,500, and July is again £1,500. Those are official example numbers, and our calculator can reproduce the same structure with your own figures or with those amounts typed in and labelled as an example.
For the year you are settling now, the January date is 31 January 2027. That payment can therefore be the balancing amount for 2025/26 plus the first payment on account towards 2026/27. The second instalment towards 2026/27 is then due on 31 July 2027. If the later calculation for 2026/27 is more than the two instalments put together, a further balancing amount will be due on 31 January 2028, alongside the first instalment of the year after that.
Reducing the instalments
If you know the tax you owe is going to be lower than last year, you can ask HMRC to reduce payments on account. You can do this online, from your account, or by sending form SA303 to your tax office. You need to include the amount you expect so HMRC can work out the new instalments. The official warning is simple: if you reduce the payments and the bill turns out higher than you expected, you will be charged interest on the difference. Check the official interest-rates page for the current late-payment rate rather than guessing a pound figure. From 6 April 2025 that rate is set at the Bank of England base rate plus 4%, and the table was last updated on 6 November 2026.
A reduction is not the same as ignoring an instalment. If payments on account are due and you simply do not pay them, late-payment penalties and interest can follow the ordinary Self Assessment rules. If you are unsure whether the tests apply, look at the statement first, then at the two official conditions, and only then at a planning calculator.
How this fits with filing
You still need to send the return on time even if you expect a repayment, and even if you have already paid instalments that will cover the bill. The return is how HMRC knows whether a balancing payment or a refund is due. File online for free on GOV.UK; you do not need paid software to do that. Our tax calculator can help you judge whether this year’s Income Tax and Class 4 NI are likely to be higher or lower than last year’s, which is the judgement behind a request to reduce instalments, but it is not a substitute for the official calculation on the return.
If last year’s tax was clearly under £1,000, or almost all of it was collected through PAYE, you may not have payments on account at all. That is a feature of the official tests, not an error. Next year, if the tests stop applying, the instalments can start. Keeping a copy of the calculation, and of any reduction request, makes the following January easier to plan for.