What is a payment on account in Self Assessment?

A payment on account is an advance payment towards your next Self Assessment tax bill, usually based on the previous year’s bill.

Why do sole traders have to make payments on account?

Sole traders often receive income without tax deducted through PAYE, so HMRC may ask for advance payments towards the next year’s tax bill.

Are payments on account extra tax?

No. They are advance payments towards the next tax year, not an extra tax charge. The final position is corrected when the next tax return is filed.

Can I reduce payments on account if my income drops?

You may be able to reduce them if your next tax bill is genuinely expected to be lower, but reducing too far can lead to interest and a later shortfall.

Which calculator estimates payments on account?

Use the Payments on Account Calculator to estimate January and July advance payments, and the Self Assessment Payment Calculator to understand the wider bill.

Side Hustles

Reviewed: 2 June 2026

Written by Conor Dwyer

Payments on account explained for sole traders

Q: When are payments on account due?

Payments on account are normally due by 31 January and 31 July, although you should always check your HMRC account for your exact position.

Payments on account are one of the most confusing parts of Self Assessment for sole traders. Many people expect to pay the tax from the year they have just reported, then discover HMRC also wants advance payments towards the next tax year. This can make the January bill look much larger than expected. If you are self-employed, freelance, run a side hustle, earn rental income or receive other untaxed income, understanding payments on account can help you avoid a nasty surprise. This guide explains what payments on account are, why they exist, when they are due, how they are estimated, when they can be reduced and how to use a calculator to plan ahead.

Guidance only, not tax, legal, accounting or financial advice

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Reviewed when UK tax guidance changes

Important information

This guide is for general information only and does not constitute tax, legal, accounting or financial advice. Check your HMRC account, official guidance or a qualified adviser before reducing payments or making tax decisions.

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Who this guide applies to

sole traders
freelancers
self-employed people
Self Assessment taxpayers
side hustlers
landlords
people with untaxed income

Common costs to consider

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phone and internet costs
equipment
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What are payments on account?

Payments on account are advance payments towards your next Self Assessment tax bill. They are usually based on your previous year’s tax bill. HMRC uses them because many Self Assessment taxpayers do not have enough tax deducted automatically through PAYE. Instead of waiting until the end of the next year, HMRC asks for two instalments during the year. In simple terms, payments on account are not an extra tax. They are a way of paying some of next year’s tax in advance. The problem is timing. The first payment on account is usually due at the same time as the balancing payment for the year you just filed, which can make the total due in January feel much higher than expected.

Balancing payment vs payment on account

A balancing payment is the amount still due for the tax year you have just completed. A payment on account is an advance payment towards the next tax year. These are different things, but they can appear together on your Self Assessment bill. For example, if your tax return shows that you owe £4,000 for the year just ended, that £4,000 may be your balancing payment. If payments on account apply, HMRC may also ask for a first payment towards next year. A common reason people panic is that they assume the whole January amount is tax for the old year. In reality, part of it may be a prepayment for the year already underway.

When are payments on account due?

Payments on account are normally due in two instalments. The first is due by 31 January and the second is due by 31 July. The 31 January date is also the deadline for online Self Assessment filing and payment of the balancing payment for the previous tax year. This creates a busy and sometimes expensive deadline. The July payment can also catch people out because it does not arrive with the same level of public attention as the January tax deadline. If you are a sole trader, it is sensible to treat January and July as tax planning months. Add reminders, set aside money monthly and estimate early. Waiting for the HMRC screen in late January is the most stressful way to handle it.

How are payments on account calculated?

Payments on account are usually calculated from your previous year’s Self Assessment bill. In broad terms, each payment is often half of the previous year’s relevant tax bill. If your previous bill was £6,000 and payments on account apply, each payment may be around £3,000. The first may be due in January and the second in July. The next tax return then works out the actual amount due for that year. If the payments on account were too low, you may have a balancing payment. If they were too high, the excess may reduce what you owe or create a repayment. This estimate-based system is why payments on account can feel unfair when income changes, but it is also why there is a process for reducing them if your income genuinely drops.

Example: first year with a strong sole trader profit

Imagine Naomi starts freelancing and earns a strong profit in her first full tax year. She files her Self Assessment return and sees a tax and National Insurance bill of £5,000. If payments on account apply, HMRC may also ask for a first payment on account towards the next tax year. A simplified January bill could therefore include the £5,000 balancing payment plus a £2,500 first payment on account. Naomi may then have another £2,500 payment due in July. If she expected to pay £5,000 total, the January amount feels shocking. But the extra £2,500 is not for the old year; it is an advance towards the next year. This is why first-time sole traders are often the people most surprised by payments on account.

Example: income drops after a good year

Now imagine Tom had a strong freelance year, then lost a major client. HMRC’s payments on account are based on the previous year, so they may assume the next year will be similar. If Tom knows his income will be much lower, the standard payments on account may be too high. In that situation, he may be able to ask HMRC to reduce them. But he should not reduce them casually. If he reduces payments too far and his final tax bill is higher than expected, he may owe the shortfall later and could face interest. A sensible approach is to estimate year-to-date income, likely future income, expenses and profit before requesting a reduction. Guessing low just to ease cash flow can create a worse problem later.

Can payments on account be reduced?

Yes, payments on account may be reduced if you genuinely expect your tax bill for the next year to be lower. This can happen if you stop trading, reduce your hours, lose clients, return to PAYE employment, sell a rental property, have much higher expenses or expect lower profit. However, reducing payments should be done carefully. The reduction should be based on realistic evidence. If you reduce too much, HMRC may charge interest on the underpaid amount. The practical question is not “Do I want a lower bill?” but “Is my next tax bill genuinely likely to be lower than HMRC’s estimate?” If you are unsure or the amounts are large, speak to an accountant before reducing payments.

Do payments on account include student loans?

Self Assessment bills can include more than Income Tax. Depending on your situation, they may include National Insurance and student loan repayments. The exact treatment of payments on account can depend on what is included in the relevant bill and HMRC rules for the year. This is one reason calculator estimates should be treated as guidance rather than a final demand. If you have a student loan, postgraduate loan, PAYE income, self-employed income and rental income all in the same year, your Self Assessment calculation can become more layered. Keep your records together and check your actual HMRC calculation before making final decisions.

How PAYE affects payments on account

If you have a PAYE job as well as sole trader income, your employer usually deducts tax from your salary. That PAYE tax can reduce the amount due through Self Assessment, but it does not automatically deal with self-employed profit. If your side income is significant, you may still have a Self Assessment bill. Whether payments on account apply depends on the final calculation and HMRC rules. People with a PAYE job and growing freelance income can be surprised because their salary tax feels “handled”, but their extra profit has not had tax deducted in the same way. Use a side hustle or sole trader calculator to estimate the profit, then use a Self Assessment payment or payments on account calculator to think about payment timing.

How to plan for payments on account

Planning is mostly about cash flow. Open a separate tax savings account if you can. Each time you receive business income, transfer a percentage into that account. Review your profit monthly or quarterly. If your income is rising, increase the amount you set aside. If your income is falling, estimate carefully before reducing payments on account. Keep a calendar reminder for January and July. File your tax return early if possible, because filing early does not mean you have to pay immediately, but it does tell you what may be due. The earlier you know the figure, the more time you have to prepare. Sole traders who treat tax as a monthly habit usually find Self Assessment much less stressful.

Using a payments on account calculator

A payments on account calculator helps you estimate how a Self Assessment bill may be split between the balancing payment and advance instalments. To get a useful estimate, start with your expected Self Assessment bill or use a sole trader tax calculator first to estimate tax on your business profit. Then consider whether payments on account may apply. The calculator can help show why January can be larger than expected and why July may also matter. It should not be treated as an official HMRC demand, but it is useful for planning. If the calculator suggests a large payment, do not ignore it. Check your records, compare with HMRC guidance and start setting money aside.

Which UK Tax Toolbox calculators should you use?

Use the Sole Trader Tax Calculator if you want to estimate tax on self-employed profit. Use the Self Assessment Payment Calculator if you want to estimate what may be due after filing. Use the Payments on Account Calculator if your main question is how the next year’s advance payments may be split. If you also have a job, use the Side Hustle Tax Calculator to understand how PAYE income and extra income interact. If your untaxed income is from property, use the Rental Income Tax Calculator first. The right sequence is simple: estimate the income, estimate the tax, then estimate the payment timing.