Blog | by Rob Young | October 2026
Payments on Account Explained: Why Your January Tax Bill Is Bigger Than Expected
Rob Young
If you have ever opened your January Self Assessment bill and found it is roughly half as big again as the tax you thought you owed, you have met payments on account. They catch out sole traders, landlords and company directors every year, because the first instalment towards next year's tax is bundled into the same January bill as the balance of the last one. With 31 January 2027 falling on a Sunday this time, it is worth understanding the numbers now rather than in deadline week.
What are payments on account?
Payments on account are advance payments towards your next Self Assessment bill. Instead of waiting until the following January to settle everything in one go, HMRC asks you to pay two instalments during the tax year itself, each worth half of your previous year's bill. They apply to Income Tax and Class 4 National Insurance, and they are due on 31 January during the tax year and 31 July after it ends.
The reason they exist is that tax on self-employed profit and other untaxed income has no equivalent of PAYE, so nothing is collected as you earn. The instalments spread the cost rather than leaving one enormous bill, but the first year you are asked to make them it feels like paying a year and a half of tax in a single month. That is the part that surprises people, and it is entirely normal.
How much will I pay on 31 January 2027?
Take someone whose 2025/26 Self Assessment liability came to £10,000, with nothing already collected at source. On 31 January 2027 they pay the £10,000 balance for 2025/26 and the first payment on account for 2026/27, which is half of the same £10,000. That is £15,000 in one go. The second instalment of £5,000 then falls due on 31 July 2027.
| Date | What is due | Using the £10,000 example |
|---|---|---|
| 31 January 2027 | Balance for 2025/26 plus first payment on account for 2026/27 | £10,000 + £5,000 = £15,000 |
| 31 July 2027 | Second payment on account for 2026/27 | £5,000 |
| 31 January 2028 | Any difference between the two instalments and the real 2026/27 bill, plus first payment on account for 2027/28 | Depends on your 2026/27 return |
Capital Gains Tax and student loan repayments are not part of the instalments. They are paid in full as part of the January balancing payment. If you are a director who takes dividends, the tax on those dividends is normally settled through Self Assessment rather than collected at source, so it counts towards the figure HMRC uses to work out your instalments.
Who has to make them, and who does not?
You are normally asked to make them if your last Self Assessment bill was £1,000 or more, unless more than 80% of that tax was already collected at source, for example through PAYE. So an employee with a small amount of side income is usually outside the system, while a sole trader or a company director drawing dividends often is not. If this is your first Self Assessment year there are no instalments to pay yet, although they will start the following January.
It is worth checking your position each year rather than assuming it carries on unchanged. A higher bill pushes you over the threshold, and a drop in profit can bring you back under it. If you are unsure which side of the line you fall, our team can check it against your last return.
Can I reduce my payments on account?
Yes, if you reasonably expect this year's tax to be lower than last year's, for instance because profits have fallen or you have bought equipment that attracts relief. You can ask HMRC to reduce or cancel the instalments online or using form SA303, and the claim has to explain why you believe the bill will be lower. It is sensible to do it before the payment falls due, although a claim can be made up to the 31 January after the tax year ends.
Be careful not to over-reduce. If the claim turns out too low, HMRC charges interest on the shortfall from the original due dates, and a careless or deliberate error can bring a penalty on top. A reduction based on a reasoned forecast is fine, but one based on hope is not.
What happens if I pay late?
Interest runs automatically on any tax paid after its due date, and penalties can apply to a late balancing payment. The deadline does not move because 31 January 2027 is a Sunday, so aim to pay by Friday 29 January at the latest. If you cannot pay in full, contact HMRC before the deadline rather than after it, because it can agree a Time to Pay arrangement and that conversation goes far better when it is early. Our guide to what to do if you can't pay your Self Assessment tax bill explains how Time to Pay works and how to set up a payment plan.
How can I plan for January?
The simplest approach is to treat the tax as a monthly cost rather than a January surprise. Work out your likely bill, divide it by the months remaining and move that amount into a separate savings account each month, so the cash is already there when the bill arrives. Our target is to have personal tax returns finished by the October after the tax year ends, which gives clients their figure with plenty of time to put the money aside.
A short checklist helps:
- Find your 2025/26 figure, or ask us for it if your return is not yet filed.
- Add the first payment on account to the balancing payment for the total January cash needed.
- Check whether your profit this year is likely to be much lower than last year, and consider a reduction claim if so.
- Set up a monthly transfer into a separate account, starting now.
- If you also have a PAYE job and a small bill, check whether you can pay through your tax code by opting in before 30 December.
The Autumn Budget on 28 October did not change what you owe for 2025/26 or the January 2027 payment dates. It confirmed that Self Assessment payments will move to smaller, more regular instalments from April 2029, with details due in 2027, so the current payments on account system stays in place for now. If you would like to see how personal tax fits into our fixed monthly fees, take a look at our guide to accountancy fees.
Frequently Asked Questions.
Need help?
If you would like a clear figure for January, or want to check whether a reduction claim makes sense, feel free to contact us via our website. This is general information rather than advice, and your own circumstances may differ.
Book a free consultation: https://loveyouraccountants.com/contact.
Author
Rob Young
Rob is Managing Director at LYA, supporting ambitious businesses to scale with confidence through clear planning and proactive financial insight.
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