Payments on Account: How HMRC Advance Tax Works in 2026

Quick answer: Payments on account are two advance payments towards your next Self Assessment bill, each usually half of last year's Income Tax and Class 4 National Insurance. They are due on 31 January and 31 July. You pay them if last year's bill was £1,000 or more, unless over 80% was collected at source.

Payments on account are the part of Self Assessment that surprises new sole traders most. You file your first return, expect to pay one year's tax, and HMRC asks for half as much again. This guide explains how payments on account work in 2026, who pays them, the deadlines for the 2026 to 2027 tax year, how to reduce payments on account if your income falls, and how to plan so January never comes as a shock. If you are still setting up, keep invoicing steady with our free invoice generator and put tax aside as you go.

Important: This is general information as of 2026, not tax advice. Your own figures depend on your income, reliefs and where in the UK you live. Check GOV.UK or a qualified adviser before acting.

What payments on account are

The UK collects tax from employees through PAYE every payday. Self-employed people and landlords pay through Self Assessment, which would otherwise mean paying a whole year's tax in one go, many months after the income was earned. Payments on account fix that by collecting tax in advance, in two instalments.

GOV.UK says each payment on account is usually half of the previous year's tax bill, and includes Class 4 National Insurance if you are self-employed. When the actual bill is known, the difference is settled with a balancing payment. The official page on HMRC payments on account has the current rules.

Who has to make payments on account

You must make both payments on account unless either of these applies:

• Your last Self Assessment tax bill was less than £1,000.
• More than 80% of last year's tax was paid outside Self Assessment, for example through your tax code or interest deducted by your bank.

Taxpayer	Last year's SA bill	Collected at source	Payments on account?
Full-time sole trader	£5,000	0%	Yes, 2 x £2,500
Employee with small side business	£800	Most of total tax	No (bill under £1,000)
Employee with larger side business	£1,200	85% of total tax via PAYE	No (over 80% at source)
Landlord with no other income	£3,000	0%	Yes, 2 x £1,500

Payments on account cover Income Tax and Class 4 National Insurance. GOV.UK says student loan repayments and Capital Gains Tax go in the balancing payment instead.

Payment deadlines for 2026 to 2027

The pattern repeats every year: a balancing payment for the year just ended plus the first payment on account for the current year on 31 January, then the second payment on account on 31 July.

Deadline	What is due
31 January 2027	Balancing payment for 2025 to 2026, plus 1st payment on account for 2026 to 2027
31 July 2027	2nd payment on account for 2026 to 2027
31 January 2028	Balancing payment for 2026 to 2027, plus 1st payment on account for 2027 to 2028

The online return for 2025 to 2026 is due by 31 January 2027, the same day as the payment. Our Self Assessment tax return guide covers filing, and you will need your UTR: see how to get a UTR number if yours has gone missing.

Worked example: the first-year jump

Priya registered as a self-employed bookkeeper during 2025 to 2026. Her profit for that year is £30,000 and she has no other income. Using the 2025 to 2026 rates for England (personal allowance £12,570, basic rate 20%, Class 4 at 6%):

• Profit above the personal allowance: £30,000 minus £12,570 = £17,430.
• Income Tax: £17,430 x 20% = £3,486.00.
• Class 4 NI: £17,430 x 6% = £1,045.80.
• Total tax for 2025 to 2026: £4,531.80.

Because this is over £1,000 and none was collected at source, HMRC sets payments on account for 2026 to 2027 at half: £2,265.90 each.

1. 31 January 2027: £4,531.80 (2025 to 2026 bill) + £2,265.90 (1st payment on account) = £6,797.70.
2. 31 July 2027: £2,265.90 (2nd payment on account).
3. 31 January 2028: the balancing payment for 2026 to 2027 (the actual bill minus £4,531.80 already paid) plus the 1st payment on account for 2027 to 2028.

So in her first 7 months of paying, Priya hands over £9,063.60, two years' worth of tax. This is a cash flow event, not extra tax: from the second year, the payments settle into a steady rhythm. The lesson is to save for it from your very first invoice.

Example: a steady second year

If Priya's 2026 to 2027 bill turns out to be £5,000, her balancing payment on 31 January 2028 is £5,000 minus £4,531.80 = £468.20, plus a first payment on account for 2027 to 2028 of £2,500 (half of £5,000). Total that January: £2,968.20, then £2,500 in July 2028.

How to reduce payments on account

If you expect this year's bill to be lower than last year's, perhaps because you lost a major client, took time off or have higher allowable expenses, you can ask HMRC to reduce your payments on account. Here is how:

1. Estimate this year's profit realistically. Use your invoices to date, signed work and expenses. Our guide on how to track business expenses helps you get accurate figures.
2. Work out the expected tax using the current rates, including Class 4 NI.
3. Sign in to your HMRC online account, select your latest return and choose reduce payments on account. Or send form SA303 to HMRC by post.
4. Enter the tax you expect to owe. HMRC sets each payment at half that amount.
5. Keep a note of your reasoning and review it before the second payment in July.

The cost of reducing too far

GOV.UK warns that if your final bill is higher than your reduced estimate, you are charged interest on the difference. HMRC late payment interest is set at the Bank of England base rate plus 4%, so it runs well above most savings rates. Suppose Priya reduces her 2026 to 2027 payments on account to £2,000 each, expecting a £4,000 bill, but the real bill is £5,000. Each payment should have been £2,500, so she is £500 short on 31 January 2027 and another £500 short on 31 July 2027. She pays the £1,000 shortfall in her balancing payment on 31 January 2028, plus interest on each £500 from its original due date.

Employees with side income: the 80% test in action

The 80% rule is why many employed people with a side business never make payments on account. Take Sam, who earns a salary and also sells photography. His total Income Tax and NI for the year is £9,000. His employer collected £7,600 through PAYE, and his Self Assessment bill for the photography profit is £1,400.

• His Self Assessment bill (£1,400) is over £1,000, so the first test does not exempt him.
• Tax collected at source is £7,600 divided by £9,000 = about 84.4%.
• Because that is more than 80%, he does not have to make payments on account.

If his side income grew so that his Self Assessment bill rose to £2,400 on total tax of £10,000, only 76% would be collected at source, and he would have to make two payments on account of £1,200 each. Pricing your side work sensibly helps you cope: our post on how to set freelance rates explains how to build tax into your prices.

If you cannot pay on time

If a payment on account is due and you do not have the money, contact HMRC before the deadline rather than after. HMRC can agree a payment plan in some cases, but interest still runs on late tax from the due date, so pay what you can as early as you can.

When you can stop making them

Payments on account stop automatically if your last bill falls below £1,000, or if more than 80% of your tax is collected at source, for example after you take a salaried job and your side income shrinks. If you stop trading, tell HMRC and consider reducing to nil, since your next bill will be lower. When your business moves to a limited company, your personal bill may drop significantly; see our guide to sole trader vs limited company, and note how dividend tax rates feed into Self Assessment.

Payments on account and Making Tax Digital

Making Tax Digital for Income Tax has applied since 6 April 2026 to sole traders and landlords with qualifying income over £50,000, falling to £30,000 from April 2027 and £20,000 from April 2028. It changes record keeping and reporting: quarterly updates due 7 August, 7 November, 7 February and 7 May, then a final return by 31 January. It does not change payment dates, so payments on account still fall on 31 January and 31 July. The quarterly figures do give you a running estimate of your bill, which is useful when deciding whether to reduce. Our Making Tax Digital guide covers the details.

How to budget for payments on account

• Save a percentage of every payment received. For a basic-rate sole trader, Income Tax plus Class 4 is 26% of profit above the personal allowance. Many set aside 20% to 30% of income in a separate savings account.
• Invoice promptly and chase late payers. Tax is due whether or not your clients have paid. Our guide to UK late payment law and statutory late payment interest help you collect on time.
• Use a budget payment plan if HMRC offers one to you, to pay in regular amounts ahead of the deadline.
• Put the dates in your calendar: 31 January and 31 July every year.
• Review your income in the autumn. By October or November you know most of the year's figures. If profit is well down on last year, that is the time to decide whether to reduce the January and July payments; if it is well up, start saving for a bigger balancing payment.
• Check your statement in your HMRC online account before each payment, using your UTR plus K as the payment reference.

Worked example: monthly saving for July and January

Using Priya's second-year figures, she needs £2,968.20 on 31 January 2028 and £2,500 on 31 July 2028, a total of £5,468.20 over the year. Saving £456 a month for 12 months gives £5,472, which covers both payments with £3.80 to spare. Spreading it this way turns two large bills into one predictable monthly transfer.

Keep cash flowing for tax day

Payments on account are simply HMRC collecting tomorrow's tax today: two halves of last year's bill on 31 January and 31 July, with a balancing payment to square up. Plan for the first-year jump, reduce payments on account only with a realistic estimate, and keep saving from every invoice. The easiest way to stay on top is steady, professional billing: create and send invoices in minutes with our invoice generator or the UK invoice generator. Your finished invoice downloads as a PDF, free and with no sign-up.