Payments on account
Payments on account are advance instalments towards your next self assessment bill, due on 31 January and 31 July. Each is half of the previous year's tax liability, and they are triggered once that liability exceeds £1,000.
How it works
If your self assessment liability for a year is more than £1,000, and less than 80% of your tax was collected at source, HMRC asks for two payments on account towards the following year. Each is half the previous year's bill. The first falls on 31 January alongside the balancing payment for the year just filed, which is why a first big tax bill often arrives as one and a half years' tax at once.
Directors meet this most often after a year with substantial dividends. Dividend tax is not deducted at source, so a director drawing heavily one year can find January's demand far higher than expected.
You can apply to reduce payments on account if you know income will be lower, but reducing them below the eventual liability means interest on the shortfall. Reducing them for a genuine reason is fine; optimistic guessing is expensive.
The second payment falls on 31 July, and any balancing payment or repayment is settled the following 31 January. Keeping a separate tax reserve as dividends are drawn is the simplest way to stop the January bill becoming a cash flow problem.
Worked example (2026/27)
First year with a £6,000 self assessment bill
| Balancing payment due 31 January | £6,000 |
|---|---|
| First payment on account, same date | £3,000 |
| Total due 31 January | £9,000 |
| Second payment on account due 31 July | £3,000 |
Who this affects
- Directors taking significant dividends with no tax deducted at source
- Anyone whose first self assessment bill exceeds £1,000
- Landlords and sole traders with variable profits year to year
- Directors whose income will fall and who could apply to reduce the instalments
Common mistakes
- Budgeting for the tax bill but not the first payment on account alongside it
- Reducing payments on account too far and paying interest on the shortfall
- Missing the 31 July instalment because no reminder arrived
Frequently asked questions
When are payments on account due?
31 January and 31 July each year, with any balancing payment for the tax year settled on the following 31 January.
Who has to make them?
Anyone whose self assessment liability exceeds £1,000, unless at least 80% of their tax was already collected at source through PAYE.
Can I reduce them?
Yes, where you reasonably expect a lower liability. If the reduction turns out to be too large, HMRC charges interest on the difference.
Do company directors have to make them?
Often yes, because dividend tax is paid through self assessment rather than deducted at source.
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Reviewed by Waqas Sagar ACA FCCA FMAAT · Last reviewed 13 September 2026 · Figures for 2026/27 · About our practice
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