Payments on account explained

What they are

When you file a Self Assessment return, HMRC assumes next year's bill will be about the same. So, as well as the bill for the year just finished, it asks you to pay towards the current year in advance, in two halves:

• First payment on account: 31 January (during the tax year)
• Second payment on account: 31 July (after the tax year ends)

When you file the return for that year, the actual bill is compared with what you've already paid. If you owe more, you pay a balancing payment the next 31 January. If you've overpaid, you get a refund or a credit.

How they're worked out

Each payment on account is half of last year's Income Tax and Class 4 National Insurance, after taking off any tax deducted at source. Tax deducted at source includes PAYE on a job or pension and CIS deductions. HMRC splits the amount in half and puts any odd penny on the second payment.

They never include:

• Capital Gains Tax;
• student loan repayments;
• Class 2 National Insurance.

When you don't have to make them

You won't have to make payments on account if either of these is true:

1. Your last Self Assessment bill (after tax deducted at source) was less than £1,000; or
2. More than 80% of the tax you owed for that year was deducted at source.

The second rule is why many CIS subcontractors never pay them: CIS takes most or all of the tax before it reaches the return.

In example B, £2,200 is over £1,000, but it's less than 20% of the £12,000 bill, so more than 80% was taken at source and no payments on account are due.

GOV.UK's worked example

GOV.UK gives this example. Your bill for last year is £3,000, and you'd already made payments on account of £1,800 towards it.

If it had been your first year and you'd made no payments on account, January would have been £3,000 + £1,500 = £4,500.

The first-year shock

The first time it happens, January can be a big hit. You pay:

• the whole bill for your first tax year (nothing was paid in advance); and
• the first payment on account for the second year, half of that bill again.

Then, six months later, the second payment on account. So between January and July you pay about twice a year's tax: 1.5 times in January and the last half in July. After that it settles down, because each year's payments on account roughly cover that year's bill.

The way to handle it is to know it's coming. Our guide to putting tax aside explains how to budget for the first year.

How CIS during the year works

CIS deducted from your pay in the previous year counts as tax deducted at source. It reduces the amount payments on account are based on, and can mean none are due.

CIS deducted in the current year is different. It can't be used to pay this year's payments on account as you go. It's only credited when you file the return for that year. So if you started CIS work this year after a year without it, you may be paying on account and having CIS taken, and get the overlap back later. That's a good reason to look at reducing them.

Reducing your payments on account

If you know this year's bill will be lower — your income has dropped, your costs have risen, or more CIS is being taken — you can ask HMRC to reduce your payments on account:

• online, in your HMRC account (Self Assessment section); or
• by sending form SA303.

You can reduce them to any amount, including to nothing. But be careful: if the final bill is higher than the reduced payments, HMRC charges interest on the shortfall from the original due dates. Reduce to a realistic estimate, not a hopeful one.

Paying late

If you miss 31 January or 31 July, HMRC charges late payment interest from the next day. The rate is the Bank of England base rate plus 4%: 7.75% from 9 January 2026. Late payment penalties (5% of the unpaid tax at 30 days, 6 months and 12 months) apply to the balancing payment, not to payments on account.

If you can't pay, contact HMRC before the deadline. You may be able to set up a Time to Pay arrangement. See Self Assessment deadlines and penalties.

Stopping them

Payments on account stop automatically if your next return shows a bill under £1,000, or with more than 80% deducted at source. If you've stopped trading and expect no Self Assessment bill this year, you can reduce them to zero.