Payments on account, explained
Does MTD apply to you yet?Payments on account are advance payments towards next year's tax bill. Once your Self Assessment bill passes £1,000, HMRC asks for next year's tax in two instalments, each half of this year's bill, due by midnight on 31 January and 31 July. It's the single most surprising thing in self-employment, because nobody mentions it until the first big January.
What they are
HMRC's logic: employees pay as they earn, so the self-employed should pay something as they go too. Each payment on account is half of last year's bill, and the pair are treated as a deposit against the current year. You're exempt only if last year's bill was under £1,000, or more than 80% of the tax you owed was collected at source, for example through PAYE on a day job.
The first-year sting
The shock lands the first time you cross the £1,000 line, because two bills arrive at once. Say your first year's bill is £4,000:
| Date | What's due | Amount |
|---|---|---|
| 31 January | Year one's bill, plus the first instalment for year two | £4,000 + £2,000 = £6,000 |
| 31 July | Second instalment for year two | £2,000 |
That first January is 150% of the tax you actually owed. Nothing extra is being charged, it's next year's tax arriving early, but if nobody warned you, it can be a £2,000 hole in the plan.
The balancing payment
When the next return goes in, HMRC compares the real bill with the two payments on account already made. Owe more, and the difference, the balancing payment, is due the following 31 January. Owe less, and the difference comes back or rolls forward.
Reducing them
If you know this year's profit will be lower, you can ask HMRC to reduce your payments on account, online or by post on form SA303, giving the amount you expect to make. The honesty check is built in: reduce them below what the eventual bill justifies and HMRC charges interest on the difference. Reduce with evidence, not optimism.
If you're under CIS
Construction subcontractors get one piece of good news here: CIS deductions count as tax collected at source. Payments on account are worked out on what's left after them, so heavy deductions through the year mean smaller instalments, and often none at all. The detail is in the CIS guide.
Quick answers
Do payments on account include National Insurance?
Class 4 National Insurance, yes. Anything owed for capital gains or student loans is paid with the balancing payment instead.
What if I end up overpaying?
Once your return is in, HMRC refunds the difference or sets it against what's next. Overpayments aren't lost.
What if my profits are falling?
You can ask HMRC to reduce your payments on account, online or on form SA303, telling them what you expect to make. Cut them too far and interest is charged on the difference.
Does everyone have to make them?
No. If last year's bill was under £1,000, or more than 80% of the tax you owed was collected at source, they don't apply.
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Join the betaSources: gov.uk, understand your Self Assessment tax bill (payments on account), and HMRC's Self Assessment legal framework manual. Checked on 4 July 2026.