Payments on account explained for the self-employed
Payments on account are two advance tax payments due in January and July. Here's who pays them, how they're worked out and how to reduce them.
Your first Self Assessment bill is often the one that hurts. You expect to pay the tax for last year. Then you find out you also owe a chunk of next year's tax, on the same day. That's payments on account.
This is the plain version of how payments on account work for the self-employed, using what GOV.UK says on its payments on account page, which I read this morning.
What are payments on account?
They're advance payments towards your next Self Assessment bill. GOV.UK says the bill includes Class 4 National Insurance if you're self-employed.
HMRC bases them on your estimated earnings, usually last year's. Each payment is normally half of last year's tax bill.
So you don't wait for one big bill. You pay in two instalments across the year.
When are payments on account due?
GOV.UK gives three dates:
- 31 January: your first payment on account, by midnight.
- 31 July: your second payment on account, by midnight.
- 31 January the following year: any balancing payment, by midnight.
The balancing payment is the difference between what you paid on account and what you really owed once the tax year is over. GOV.UK says it can also include capital gains tax and, for self-employed people, student loan repayments.
If you earned more than HMRC estimated, you owe a balancing payment. If you earned less, you may be able to claim a refund.
Who has to make them?
You must make both payments unless one of two things is true. GOV.UK says you're excused if:
- the tax you owed last year was less than £1,000, or
- last year you paid more than 80% of your tax outside Self Assessment, for example through your tax code or through interest your bank had already deducted from your savings.
So a part-time tutor with a job on PAYE and a small tax bill probably won't pay on account. A full-time cleaner with a £3,000 bill will.
A worked example from GOV.UK
This is the first-year case, and it's the one that catches people out. GOV.UK uses a 2023 to 2024 bill of £3,000, with no payments on account the year before.
By 31 January 2025, you pay:
- the full £3,000 for 2023 to 2024, and
- a first payment on account of £1,500 for 2024 to 2025.
That's £4,500 in one go. Then on 31 July 2025 you pay the second £1,500.
If your 2024 to 2025 bill is again £3,000, you've already paid it all on account. The only thing due on 31 January 2026 is the first payment on account for the next year.
Say you're a cleaner and you're in this spot. You can see why saving for tax matters from day one. Our guide on how to save for tax as a self-employed person covers a simple way to do it.
What if your income drops?
Payments on account are based on last year, not this year. If you have a quiet year, you could be paying more than you owe.
You can ask HMRC to lower them. GOV.UK says you can do it online: sign in, view your latest return and select "Reduce payments on account". Or you can post form SA303 to your tax office. You'll need to state the amount you expect to owe.
Be careful with this. If you reduce them and your bill ends up higher than expected, GOV.UK says you'll be charged interest on the shortfall.
What happens if you pay late?
HMRC charges interest on unpaid tax. On its interest rates page, GOV.UK lists the late payment rate for Self Assessment at 7.75%, from 9 January 2026. Rates change, so check the page before you plan around the number.
There are also penalties. GOV.UK's penalties page says late payment penalties apply at 30 days, 6 months and 12 months, each at 5% of the tax still unpaid at that point. You'll also be charged interest on the amount owed.
For more on how often people get this wrong, see our piece on how many people miss the Self Assessment deadline.
How do you check what you owe?
Sign in to your online HMRC account, select your latest return, then select "View statements". If you file on paper, check your most recent Self Assessment Statement.
My take
Payments on account aren't an extra tax. They're your tax, paid earlier. The pain comes from the first year, when you pay a year and a half of tax in one January.
The fix is boring. Work out what to set aside from each payment you receive, and move it somewhere you won't touch. Then the January bill is just a transfer.
At Vcents, we help self-employed people get paid fast, straight into their own bank account, over WhatsApp. Getting paid on time is half of being ready for the tax bill.
Sources
Vcents turns the thread into a payment.
Ask for money in plain English. Your customer taps once, authorises in their own bank, and the receipt lands back in the chat.
How receiving payments works