Receiving a Self Assessment tax bill of £6,000 is one thing. Discovering that HMRC expects you to pay £9,000 by 31 January can be an unpleasant surprise.
For many sole traders, the additional £3,000 is not a penalty or an unexpected tax charge. It is an advance payment towards the following tax year’s bill, known as a payment on account.
Understanding how payments on account work is essential for managing your business cash flow. You need to know when HMRC requires advance payments, how much you must pay and what happens if your profits fall.
This Accfirm guide explains the UK payments on account rules for 2026/27, including calculation examples, payment deadlines, first-year tax bills, reductions, refunds and practical ways to avoid unexpected tax liabilities.
What are payments on account for sole traders?
Payments on account are advance payments towards your next Self Assessment tax bill. HMRC normally requires two instalments each year, with each instalment equal to 50% of the previous year’s relevant tax liability.
Payments on account generally cover Income Tax and Class 4 National Insurance contributions for self-employed individuals. They are credited against your eventual tax bill rather than charged as an additional tax.1
For example, if your relevant Self Assessment liability for 2025/26 is £6,000, HMRC will generally calculate your advance payments for 2026/27 as follows:
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First payment on account: £3,000 by 31 January 2027.
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Second payment on account: £3,000 by 31 July 2027.
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Total advance payments towards your 2026/27 liability: £6,000.
When you complete your 2026/27 Self Assessment tax return, HMRC will calculate your actual liability and deduct the advance payments already made.
If your actual liability exceeds £6,000, you must pay the outstanding balance. If your liability is lower, you may have an overpayment.
The important distinction is that payments on account bring forward when you pay tax. They do not increase the total Income Tax and National Insurance you owe on your profits.
Who has to make payments on account?
Most sole traders must make payments on account when their relevant Self Assessment liability for the previous tax year is £1,000 or more and they have not already paid more than 80% of their tax liability outside Self Assessment.
HMRC generally does not require payments on account if either of the following applies:
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Your relevant tax liability for the previous year was less than £1,000.
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More than 80% of your tax liability was collected outside Self Assessment, such as through PAYE or tax deducted at source.
The £1,000 threshold is based on the relevant tax liability, not your business turnover or taxable profit.
Examples of when payments on account apply
| Sole trader’s circumstances | Payments on account required? |
|---|---|
| Relevant tax liability of £850 | No, because it is below £1,000. |
| Relevant tax liability of £2,400, with no tax deducted outside Self Assessment | Yes, normally two payments of £1,200. |
| Relevant tax liability of £4,000, with £3,400 already collected outside Self Assessment | No, because more than 80% has already been collected. |
| Relevant tax liability of £5,000, with £3,000 collected outside Self Assessment | Generally yes, with payments calculated on the remaining relevant amount. |
Illustrative examples based on HMRC’s £1,000 and 80% rules. The actual amount depends on the components of your Self Assessment calculation.
Do you need to make payments on account if you have a PAYE job and a sole trader business?
Yes, you may need to make payments on account if you receive employment income alongside your self-employment income.
HMRC considers your overall tax position, including the amount already collected through PAYE and the relevant tax liability remaining under Self Assessment.
For example, a freelance graphic designer who also works part-time may have some Income Tax deducted automatically through their employer.
If the designer’s remaining relevant Self Assessment liability reaches the payment-on-account threshold and the 80% exception does not apply, advance payments may be required.
Having a PAYE job does not automatically exempt a sole trader from payments on account.
What taxes are included in payments on account?
Payments on account generally cover Income Tax and Class 4 National Insurance contributions, rather than every amount appearing on your Self Assessment statement.
Understanding the difference helps you calculate your advance payments correctly.
| Tax or contribution | Included in payments on account? |
|---|---|
| Income Tax on self-employment profits | Yes |
| Class 4 National Insurance | Yes |
| Income Tax on other taxable income, where relevant | Yes |
| Capital Gains Tax | No |
| Student Loan repayments | No |
| Postgraduate Loan repayments | No |
| Class 2 National Insurance contributions | No |
| VAT | No — separate VAT payment rules apply |
| Corporation Tax | No — separate company tax rules apply |
HMRC’s payment-on-account calculation excludes Capital Gains Tax, Student Loan and Postgraduate Loan repayments, and Class 2 National Insurance contributions.
VAT and Corporation Tax are separate taxes with their own payment arrangements.
For example, if your Self Assessment bill includes £5,000 of relevant Income Tax and Class 4 National Insurance, plus £1,200 of Student Loan repayments, the £1,200 Student Loan amount does not increase the payments on account calculated from that bill.
Your advance payments would generally be based on £5,000, giving two instalments of £2,500, assuming no other relevant adjustments or exemptions.
When are payments on account due in 2026/27?
For the 2026/27 tax year, the first payment on account is due by 31 January 2027 and the second is due by 31 July 2027.
The final balancing payment for 2026/27 is normally due by 31 January 2028, after your actual tax liability has been calculated.
HMRC payments on account deadlines for 2026/27
31 Jan
2027
First payment on account
Pay 50% of your relevant 2025/26 liability towards the 2026/27 tax year. Any outstanding balance for 2025/26 is normally due on the same date.
31 Jul
2027
Second payment on account
Pay the remaining 50% of your advance payments towards your 2026/27 tax liability.
31 Jan
2028
Final balancing payment
Pay any outstanding 2026/27 liability and your first payment on account for 2027/28, if required.
What are the Self Assessment filing deadlines for 2025/26?
The 2025/26 tax year ended on 5 April 2026. The normal deadlines for submitting the corresponding Self Assessment tax return are:
| Requirement | Deadline |
|---|---|
| Register for Self Assessment, if required | 5 October 2026 |
| Submit a paper tax return | 31 October 2026 |
| Submit an online tax return | 31 January 2027 |
| Pay the outstanding 2025/26 tax bill | 31 January 2027 |
| Make the first 2026/27 payment on account | 31 January 2027 |
These are HMRC’s standard filing and payment deadlines. Different deadlines may apply in specific circumstances, such as when HMRC issues a notice to file late.
Accfirm tip: You do not need to wait until January to submit your Self Assessment tax return. Filing early gives you more time to understand your liability, review your payments on account and organise your business cash flow.
How are payments on account calculated?
HMRC calculates each payment on account as half of the previous tax year’s relevant liability after the applicable adjustments.
The standard calculation is:
Payment on account formula
= Each advance payment
Where payments on account are required and no reduction has been claimed.
For example, if the relevant liability for 2025/26 is £8,000:
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First payment on account for 2026/27: £4,000.
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Second payment on account for 2026/27: £4,000.
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Total paid in advance towards 2026/27: £8,000.
HMRC then compares those advance payments with your actual 2026/27 liability to determine whether a balancing payment or refund is due.
Example 1: Your first Self Assessment bill is £6,000
Your first substantial Self Assessment bill can be especially difficult to budget for because you may need to pay the previous year’s liability and your first advance payment at the same time.
Suppose you started trading during the 2025/26 tax year. After filing your first return, your relevant Income Tax and Class 4 National Insurance liability is £6,000.
You have not made any earlier payments on account, and you do not qualify for an exemption.
Payment due on 31 January 2027
2025/26 tax liability
£6,000
First 2026/27 payment on account
£3,000
Total payable on 31 January 2027
£9,000
£6,000 outstanding tax + £3,000 advance payment
31 July 2027
Second payment on account
£3,000
The £6,000 paid on account is credited against the actual 2026/27 tax liability.
You would therefore pay £12,000 across January and July 2027: £6,000 to settle the 2025/26 liability and £6,000 in advance for 2026/27.
The additional £6,000 is not a second tax charge on your 2025/26 earnings. It is a prepayment towards the next tax year.
Example 2: Your profits and tax liability increase
If your tax liability increases, your original payments on account may not cover the full amount owed for the tax year.
Suppose your relevant 2025/26 tax liability was £4,000, meaning your payments on account for 2026/27 are £2,000 each.
Your business performs well during 2026/27, and your actual relevant liability increases to £6,000.
| Description | Amount |
|---|---|
| Actual 2026/27 liability | £6,000 |
| First payment on account | £2,000 |
| Second payment on account | £2,000 |
| Total paid in advance | £4,000 |
| Outstanding balancing payment | £2,000 |
The £2,000 balancing payment will normally be due by 31 January 2028.
You may also have to pay your first payment on account for 2027/28 on the same date. Assuming your relevant liability is £6,000, that advance payment would be £3,000.
Your combined January 2028 payment would therefore be £5,000, excluding any other outstanding amounts.
Example 3: Your profits and tax liability decrease
If your actual liability is lower than the advance payments already made, you may be entitled to a refund or have a credit available against other tax liabilities.
Suppose your payments on account for 2026/27 total £6,000, but your actual relevant tax liability for that year is only £4,000.
| Description | Amount |
|---|---|
| Payments on account already made | £6,000 |
| Actual 2026/27 liability | £4,000 |
| Amount overpaid | £2,000 |
The £2,000 overpayment may be refunded or allocated against another amount due to HMRC.
HMRC may offset an overpayment against a payment on account due within the next 45 days rather than issue an immediate refund.
Can you reduce your payments on account if your profits fall?
Yes. You can ask HMRC to reduce your payments on account if you reasonably expect your current year’s relevant tax liability to be lower than the amount used to calculate your advance payments.
A reduction may be appropriate if your business income has fallen, your allowable expenses have increased or your other tax circumstances have changed.
HMRC allows taxpayers to request a reduction online or by submitting form SA303. However, reducing your payments too much can result in interest charges.
When should a sole trader consider reducing payments on account?
A reduction may be appropriate when:
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Your business has lost a major customer or contract.
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You have reduced your working hours or stopped trading.
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Your business is expected to make a smaller taxable profit.
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You have incurred additional allowable business expenses.
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Your tax reliefs, other income or tax deducted at source have changed.
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You have moved into employment and expect more of your Income Tax to be collected through PAYE.
A reduction should be based on a reasonable estimate of your expected tax liability, not simply on the amount of cash available in your business bank account.
How to reduce payments on account through HMRC
You can request a reduction through your HMRC online account.
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Sign in to your HMRC online account.
Access your Self Assessment records using your Government Gateway credentials.
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Review your latest Self Assessment return.
Check the payments on account currently calculated by HMRC.
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Select ‘Reduce payments on account’.
Follow the instructions to submit your reduction request.
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Enter your revised payment amount.
Use your expected tax position for the relevant tax year to determine a reasonable new amount.
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Check your updated statement.
Review the revised payment amounts and retain a copy of your supporting calculations.
You can also submit form SA303 to your tax office if you prefer to make a postal claim.
Example: Reducing payments on account from £5,000 to £2,000
Suppose your previous relevant tax liability was £10,000. HMRC would normally calculate two payments on account of £5,000 each.
However, your business loses a major contract. Based on your revised profit forecast, you reasonably expect your current year’s relevant tax liability to be £4,000.
You could request the following adjustment:
| Description | Original amount | Revised amount |
|---|---|---|
| First payment on account | £5,000 | £2,000 |
| Second payment on account | £5,000 | £2,000 |
| Total advance payments | £10,000 | £4,000 |
The reduction would lower your advance payment requirement by £6,000.
If your actual relevant tax liability is £4,000, the reduced payments will cover the liability.
However, if your actual liability is £7,000, the £4,000 already paid will leave a £3,000 balancing payment. Interest may also be charged on the amounts that should have been paid on account.
Accfirm tip: Before requesting a reduction, review your year-to-date income, allowable expenses, projected profits and expected Income Tax and National Insurance. Update your forecast if your business circumstances change.
What happens if you reduce your payments on account too much?
If your actual relevant tax liability is higher than the reduced payments you should have made, HMRC can charge interest on the resulting shortfall.
Interest can be calculated from the original payment-on-account due dates, rather than simply from the following January’s balancing payment deadline.
For example, suppose your original payments on account were £3,000 each.
You reduce both payments to £1,000 because you expect your relevant liability to fall to £2,000.
Your actual relevant liability is subsequently calculated at £5,000.
Although you paid £2,000, you would ordinarily have needed to pay £2,500 in each instalment to cover the final relevant liability.
HMRC may therefore charge interest on the underpaid amounts from the applicable January and July deadlines.
The exact interest depends on the dates, amounts and relevant HMRC interest rates.
A reasonable reduction can improve cash flow, but an excessive reduction may increase the eventual cost of settling your tax bill.
Can you cancel payments on account completely?
You may be able to reduce your payments on account to nil if you reasonably expect that no payments on account will be needed for the relevant tax year.
This may happen if you stop trading, your taxable income falls substantially or your changed circumstances mean your expected relevant liability is fully covered by tax deducted at source.
HMRC permits taxpayers to claim a reduction or cancellation based on their expected current-year liability.
However, stopping work does not automatically cancel payments on account.
You should consider all relevant income sources and tax liabilities before submitting a cancellation request.
For example, a sole trader who closes their business but continues to receive substantial taxable rental income may still have a Self Assessment liability.
Likewise, moving into PAYE employment does not automatically mean that the advance payments originally calculated by HMRC should be reduced to zero.
What happens if you miss a payment on account deadline?
If you miss a payment on account, HMRC can charge late payment interest on the outstanding amount from the relevant due date until it is paid.
A missed payment on account is not automatically subject to the separate 5% late payment penalty that can apply to overdue balancing payments. However, an unpaid payment on account can become subject to late payment penalties if it remains outstanding when the relevant balancing payment becomes due.
HMRC late payment interest and penalties
The distinction between interest and penalties is important.
| Circumstance | Possible consequence |
|---|---|
| Payment on account paid after its due date | Late payment interest |
| Excessive reduction of payments on account | Interest on the relevant shortfall |
| Balancing payment remains unpaid 30 days after its due date | A 5% late payment penalty may apply |
| Balancing payment remains unpaid after six months | A further 5% late payment penalty may apply |
| Balancing payment remains unpaid after 12 months | An additional 5% late payment penalty may apply |
Late payment interest can apply in addition to the relevant penalties.
The actual charges depend on the liability, payment dates and individual circumstances.
What should you do if you cannot afford your payments on account?
Contact HMRC as soon as possible if you cannot pay your Self Assessment bill.
Depending on your circumstances, you may be able to arrange a payment plan, commonly known as a Time to Pay arrangement.
HMRC will consider your financial circumstances, including your income, essential expenses, other tax liabilities and ability to repay the debt.
You can check the official HMRC guidance on setting up a tax payment plan .
A payment plan is different from reducing your payments on account. A reduction changes the advance payment amount based on your expected tax liability, while a payment plan helps you manage an amount you owe.
How can sole traders budget for payments on account?
The most practical way to manage payments on account is to reserve money for tax throughout the year, rather than relying on the cash available immediately before January or July.
Your tax savings should cover your expected Income Tax, National Insurance and any other liabilities that apply to your business.
1. Open a separate business tax savings account
Consider keeping your tax savings separate from the money available for everyday business expenses.
For example, a sole trader with monthly business receipts of £6,000 and allowable expenses of £2,000 has an estimated monthly profit of £4,000.
Rather than treating the entire £4,000 as available personal income, the trader should reserve an appropriate amount towards future tax liabilities.
A separate account can make it easier to manage supplier payments, business costs and personal drawings without accidentally spending money needed for HMRC.
2. Estimate your tax liability regularly
Review your taxable profit and expected tax position at least every quarter.
Include relevant items such as:
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Business income and allowable expenses.
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Capital allowances and applicable tax reliefs.
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Income Tax and Class 4 National Insurance.
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Other taxable income and tax already deducted.
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Student Loan repayments, where applicable.
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Payments on account already made.
If you expect your tax liability to increase, adjust your savings accordingly.
You can also use Accfirm’s Sole Trader Tax Calculator to estimate your Income Tax and National Insurance obligations.
WordPress internal-link note: Replace the homepage URL above with the published URL of your Sole Trader Tax Calculator page.
3. Make regular payments towards your tax bill
HMRC offers a Budget Payment Plan that allows eligible taxpayers to make weekly or monthly Direct Debit payments towards their next Self Assessment bill.
You generally need to be up to date with your previous Self Assessment payments to use the plan.
The money you pay is credited towards your future liability, but you must still settle any outstanding balance by the relevant deadline.
For example, if you estimate that your next tax bill will be £6,000, saving £500 per month over 12 months would give you £6,000 towards that liability.
The appropriate savings amount will depend on your actual tax position and the timing of your payments.
4. File your Self Assessment return early
Submitting your tax return early helps you understand your final liability and prepare for the next payment deadline.
For the 2025/26 tax year, HMRC’s normal online filing deadline is 31 January 2027. However, you can submit the return before that date.
Filing early does not normally bring forward your tax payment deadline. It gives you additional time to plan your finances.
5. Review your payments on account with an accountant
A qualified accountant can review your business profits, tax calculations and payments already made to help identify your expected liability.
Professional advice can be particularly useful if you have fluctuating income, several sources of taxable income or significant changes in your business circumstances.
An accountant can also assess whether reducing your payments on account is appropriate and help you avoid making an excessive reduction.
How do you pay your Self Assessment payments on account?
You can pay your payments on account using the payment methods supported by HMRC, including online banking, bank transfers, Direct Debit and payment through the HMRC app.
Your payment must reach HMRC by the applicable deadline.
Step-by-step: Pay your Self Assessment bill online
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Sign in to your HMRC online account or open the official Self Assessment payment service.
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Check your current statement and identify the amount due.
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Choose an available payment method.
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Enter the appropriate Self Assessment payment reference.
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Complete the payment and retain the confirmation.
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Check your HMRC account to confirm that your payment has been allocated correctly.
Your Self Assessment payment reference is normally your 10-digit Unique Taxpayer Reference (UTR) followed by the letter K.
Using an incorrect reference may delay the allocation of your payment or cause it to be allocated to another liability.
Pay HMRC securely
Use the official GOV.UK payment service to review the available payment methods and pay your Self Assessment bill.
How does Making Tax Digital affect payments on account in 2026/27?
Making Tax Digital for Income Tax changes how affected sole traders keep records and report their income to HMRC. It does not, by itself, replace the normal January and July Self Assessment payment-on-account timetable.
From 6 April 2026, Making Tax Digital for Income Tax applies to qualifying sole traders and landlords with total qualifying income above £50,000 in the 2024/25 tax year, unless an exemption applies.
The programme is being introduced in stages.
| Qualifying income | Start date |
|---|---|
| More than £50,000 in 2024/25 | 6 April 2026 |
| More than £30,000 in 2025/26 | 6 April 2027 |
| More than £20,000 in 2026/27 | 6 April 2028 |
Qualifying income generally means gross self-employment and property income before expenses, rather than taxable profit.
Affected sole traders must use compatible software to maintain digital records, submit quarterly updates and complete their tax return through the appropriate digital process.
Quarterly updates are reporting requirements. They do not automatically mean that Income Tax payments on account become payable every quarter.
For sole traders affected by Making Tax Digital, maintaining accurate digital records can make it easier to estimate profits, understand upcoming tax liabilities and identify whether a payment-on-account reduction may be appropriate.
What are the most common payments on account mistakes?
The most common mistakes involve misunderstanding payment deadlines, confusing advance payments with additional tax and underestimating how much must be paid in January.
Avoid the following issues when preparing your Self Assessment payments.
| Common mistake | How to avoid it |
|---|---|
| Assuming your first tax bill will only include the previous year’s liability | Check whether your first payment on account is due at the same time. |
| Treating payments on account as an additional tax | Remember that advance payments are credited against your final liability. |
| Forgetting the 31 July payment | Add both the January and July deadlines to your financial calendar. |
| Reducing payments without a reliable profit forecast | Calculate your expected relevant tax liability before submitting a reduction request. |
| Assuming payments on account cover every tax on your statement | Account separately for liabilities such as Student Loan repayments and Capital Gains Tax. |
| Spending money reserved for tax | Maintain a dedicated tax savings balance and review it regularly. |
| Waiting until January to prepare your return | Complete your records and estimate your liability well before the payment deadline. |
Accfirm tip: Do not rely solely on your tax calculation to establish how much you need to pay immediately. Your HMRC Self Assessment statement shows payments on account, previous payments, outstanding amounts and any balancing payment due.
Frequently asked questions about payments on account for sole traders
Do all sole traders have to make payments on account?
No. Payments on account are generally required when your previous year’s relevant Self Assessment liability is £1,000 or more and you have not already paid more than 80% of your tax liability outside Self Assessment.
If either exception applies, HMRC will not normally require the two advance payments.
Do you pay payments on account in your first year of self-employment?
You do not normally make payments on account during your first trading year if you have no previous relevant Self Assessment liability on which to base them.
However, after submitting your first tax return, you may have to pay the full outstanding liability for that year and your first advance payment towards the following year at the same January deadline.
Are payments on account based on turnover or profit?
Payments on account are based on your previous year’s relevant tax liability, not directly on business turnover or profit.
Your taxable profit affects your Income Tax and Class 4 National Insurance calculations, which can then influence the amount of your advance payments.
Can you pay payments on account monthly instead of twice a year?
You can make regular payments towards your Self Assessment liability using HMRC’s Budget Payment Plan if you meet the eligibility requirements.
However, the statutory payment-on-account deadlines remain 31 January and 31 July. Any amount not covered by your regular payments must still be paid by the relevant deadline.
Can you get a refund of payments on account?
Yes. If the advance payments you have made exceed your actual tax liability, you may be entitled to a refund.
HMRC may instead use the overpayment against another outstanding liability or an upcoming payment on account. You can check your Self Assessment statement and online account for the relevant credit or repayment.
Do payments on account apply to company directors?
Company directors may have to make payments on account if their personal Self Assessment position meets the relevant conditions.
For example, a director who receives substantial dividend income alongside employment income may have a personal tax liability that results in advance payments.
The company’s Corporation Tax liability is separate from the director’s personal Self Assessment obligations.
Can you stop payments on account if you close your sole trader business?
You may be able to reduce or cancel future payments on account if you cease trading and reasonably expect your relevant tax liability to fall.
However, you still need to settle any outstanding tax from previous years and account for other taxable income.
Closing your business does not automatically remove existing Self Assessment liabilities.
What happens if you cannot afford your July payment on account?
If you cannot afford the July payment, review whether your expected tax liability has genuinely fallen. If so, you may be able to request a reduction.
If your liability has not fallen but you cannot afford to pay, contact HMRC about possible payment arrangements.
A reduction request should reflect your expected tax liability rather than being used solely to postpone an amount you know you owe.
How can Accfirm help sole traders manage payments on account?
Managing payments on account becomes easier when you have an accurate understanding of your business profits, expected tax liabilities and upcoming HMRC deadlines.
At Accfirm, we help UK sole traders understand their accounting and tax obligations, plan for Self Assessment and prepare for important payment deadlines.
Our sole trader accountants can support you with:
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Preparing and submitting your Self Assessment tax return.
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Calculating Income Tax and National Insurance liabilities.
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Reviewing payments on account and balancing payments.
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Assessing whether a reduction in advance payments is appropriate.
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Identifying allowable business expenses and relevant tax reliefs.
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Maintaining accurate business records and preparing for Making Tax Digital.
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Planning cash flow around January and July tax deadlines.
Whether you are completing your first Self Assessment return or managing an established business, professional tax planning can help you understand your obligations and prepare for upcoming payments.
Need help with your payments on account?
Understand your Self Assessment liability, prepare for HMRC deadlines and plan your tax payments with support from Accfirm.
Visit Accfirm to find the appropriate accounting service for your business.
Final thoughts: Plan ahead for your next Self Assessment payment
Payments on account are advance payments towards your future Income Tax and Class 4 National Insurance liability. They are not an additional tax, but they can create substantial cash-flow pressure if you do not prepare for them.
For the 2026/27 tax year, the key dates are 31 January 2027, 31 July 2027 and 31 January 2028.
Keep accurate business records, estimate your tax liability regularly and check your HMRC statement before each payment deadline. If your tax circumstances change, review whether your payments on account should be adjusted.
If you are unsure how much you owe or whether a reduction is appropriate, speak with a qualified accountant before making changes to your payments.