Payments on Account and Cash Flow: How to Plan for January's Tax Bill

Payments on account are advance instalments towards your next self-assessment tax bill, and under the payments on account self-employed HMRC rules you make two each year: one by 31 January and one by 31 July. Each instalment is normally half of your previous year's income tax and Class 4 National Insurance, so HMRC effectively asks you to pay next year's tax before you have earned all the income. For anyone newly self-employed, the first January bill can be a shock, because it can include both the tax owed for the year just gone and the first payment on account for the year ahead. Blue Tick Accountants, a Guildford-based UK tax advisory and accountancy practice, helps self-employed clients plan for these dates so January never catches them out.

This guide explains how payments on account are calculated, when they fall due, how to reduce them if your income drops, and how the balancing payment fits in.

Key Takeaways

• Payments on account are two advance instalments towards your self-assessment tax, each equal to 50% of the previous year's income tax and Class 4 National Insurance liability.
• The first payment on account is due by 31 January and the second by 31 July each year.
• You do not have to make payments on account if your previous self-assessment bill was under £1,000, or if more than 80% of your tax was collected at source such as through PAYE.
• A balancing payment settles any difference between the payments on account already made and your actual tax liability, and it is due by 31 January.
• You can apply to reduce your payments on account if you expect your income, and therefore your tax, to be lower than the previous year.
• Making Tax Digital for Income Tax does not change the payments on account dates, which remain 31 January and 31 July.

How are payments on account calculated?

Each payment on account is 50% of your total income tax and Class 4 National Insurance liability from the previous tax year, excluding any Class 2 National Insurance and student loan repayments. HMRC assumes your income will be broadly similar year to year, so it splits an amount equal to last year's tax into two equal instalments paid in advance. These are your self-assessment advance payments.

The system starts once your tax bill passes £1,000, provided less than 80% of your tax is already collected at source. If you meet both conditions, HMRC automatically sets up payments on account when you file your return.

Consider a self-employed designer whose 2025/26 tax return shows income tax and Class 4 National Insurance of £6,000. HMRC creates two payments on account of £3,000 each towards 2026/27. The first £3,000 is due by 31 January 2027 and the second £3,000 by 31 July 2027. By the following January the designer will have paid £6,000 in advance towards a 2026/27 bill that may turn out higher or lower than that figure.

For a full walkthrough of the system, see our guide to self-assessment tax returns.

When are the January and July tax payments due?

The two January and July tax payments are due by 31 January and 31 July each year, and the January date also carries your balancing payment for the previous year. This is why the 31 January deadline is the heavier of the two. On that date you can be paying the balancing payment for the tax year just ended plus the first payment on account for the current tax year at the same time.

Take the designer above. On 31 January 2027 they might pay the balancing payment for 2025/26 and the first 2026/27 payment on account together. If the 2025/26 bill was £6,000 and no payments on account had yet been made for that year, the 31 January 2027 demand could be £6,000 plus a £3,000 payment on account, a total of £9,000. This combined bill is exactly what surprises people in their first full year of self-employment.

The 31 July payment is usually simpler, being just the second payment on account. Setting aside money each month, or paying into HMRC's Budget Payment Plan, spreads the cost and avoids a cash flow squeeze at the end of January.

How can I reduce my payments on account?

You can apply to reduce your payments on account if you expect your income, and therefore your tax, to be lower than the previous year. You do this through your self-assessment account or by submitting form SA303, telling HMRC the reduced amount you believe each instalment should be. Reducing the payments improves your cash flow when trade slows, but there is a catch.

If you reduce your payments on account too far and your actual tax turns out higher than the reduced figure, HMRC charges interest on the shortfall from the original due dates. Reducing them should therefore be based on a realistic estimate, not wishful thinking. If your income has genuinely fallen, reducing the instalments keeps money in your business when you need it most.

The opposite also applies. If your income rises, the balancing payment the following January makes up the difference, so a strong year quietly builds a larger bill. Reviewing your likely profit before each payment date lets you plan for either outcome rather than react to it.

Does Making Tax Digital change payments on account?

Making Tax Digital for Income Tax does not change payments on account, which remain due on 31 January and 31 July. From 6 April 2026, sole traders and landlords with qualifying income above £50,000 must keep digital records and send HMRC quarterly updates plus a final declaration by 31 January. Those with income above £30,000 join from April 2027, and those above £20,000 from April 2028.

The quarterly updates report your income and expenses, but they are not tax payments. Your actual tax, and the payments on account towards it, are still settled through the self-assessment timetable. So a self-employed person above the £50,000 threshold now files four quarterly updates and a final declaration, yet still pays their January and July tax payments on the same dates as before.

Good digital record-keeping does make planning easier, because up-to-date figures show your likely profit through the year. That visibility helps you set aside the right amount for each payment on account instead of guessing.

Frequently Asked Questions

What are payments on account for the self-employed?

Payments on account are advance instalments towards your self-assessment tax bill under the payments on account self-employed HMRC rules. You make two a year, each equal to 50% of your previous year's income tax and Class 4 National Insurance. The first is due by 31 January and the second by 31 July, spreading your tax across the year rather than in one lump sum.

When are payments on account due?

Payments on account are due by 31 January and 31 July each year. The 31 January instalment is usually the larger demand because it can include the balancing payment for the previous tax year alongside the first payment on account for the current year. The 31 July instalment is normally just the second payment on account.

How do I reduce my payments on account?

You reduce your payments on account by applying through your HMRC self-assessment account or by submitting form SA303, stating the lower amount you expect to owe. This helps when your income falls. However, if you reduce them below your actual tax liability, HMRC charges interest on the shortfall from the original due dates, so base any reduction on a realistic estimate.

What is a balancing payment?

A balancing payment settles the difference between the payments on account you have already made and your actual tax liability for the year. It is due by 31 January following the end of the tax year. If your income rose, the balancing payment tops up what you owe; if it fell, you may have overpaid and can claim a refund.

Do I still make payments on account under Making Tax Digital?

Yes. Making Tax Digital for Income Tax adds quarterly digital updates and a final declaration but does not change payments on account, which remain due on 31 January and 31 July. The quarterly updates report income and expenses, while your tax and the advance payments towards it are still settled through the self-assessment timetable.

How Blue Tick Can Help

Blue Tick Accountants helps self-employed clients forecast their payments on account, plan for the January and July deadlines, and apply to reduce instalments correctly when income falls. Blue Tick can also get you set up for Making Tax Digital for Income Tax so your records show your likely tax bill in real time, leaving no nasty surprises. Head to our website and book a meeting now.

Conclusion

Payments on account are simply next year's tax paid in advance, split across 31 January and 31 July, with a balancing payment squaring up the difference each January. Knowing the dates and setting money aside each month turns a stressful demand into a planned expense. If your income changes, review your instalments early so you neither overpay nor face interest on a shortfall.

About the Author

This guide was written by Leon, founder of Blue Tick Accountants, a Guildford-based UK tax advisory and accountancy practice that helps the self-employed, landlords and limited company owners across the UK. Leon is a chartered tax adviser and accountant. This article was last reviewed for the 2026/27 tax year.

This article is intended for general informational purposes only and does not constitute tax, legal, or financial advice. Tax rules are subject to change and their application will depend on your individual circumstances. You should always seek advice from a qualified professional before taking action. Blue Tick Accountants accepts no liability for decisions made on the basis of this content.