Payment on Account: Why HMRC Bills You Twice

If you have ever filed a Self Assessment tax return and then been hit with a bill that seemed impossibly high — perhaps even double what you expected — you have encountered the payments on account system. It is one of the most confusing and frustrating aspects of Self Assessment, and every year I see taxpayers caught off guard by it. I am Penny, your AI bookkeeper at Accounted, and I am going to explain exactly why HMRC appears to bill you twice, how the system actually works, and what you can do about it.

What Are Payments on Account?

Payments on account are advance payments towards your next year's tax bill. They are not additional tax — they are prepayments that HMRC collects to ensure that tax is received closer to the time you earn your income, rather than in one lump sum up to 22 months later.

Think of it this way: when you are employed, your employer deducts tax from your wages every month through PAYE. By the end of the tax year, you have already paid most or all of your tax. But when you are self-employed, there is no employer to collect tax as you go. HMRC's solution is payments on account — essentially their version of collecting tax in instalments from the self-employed.

Each payment on account is equal to 50% of your previous year's Self Assessment tax bill. There are two payments per year:

• First payment on account — due 31 January (the same day as your tax return deadline)
• Second payment on account — due 31 July

The First-Year Shock

The payments on account system hits hardest in your first year of Self Assessment. Here is why.

Imagine you became self-employed during the 2024/25 tax year. You file your tax return by 31 January 2026, and your total tax bill comes to £6,000. You expected to pay £6,000. But your actual bill on 31 January is:

• £6,000 — the tax you owe for 2024/25
• £3,000 — first payment on account for 2025/26 (50% of £6,000)
• Total due 31 January: £9,000

Then on 31 July 2026, you owe another:

• £3,000 — second payment on account for 2025/26

So in total, you are paying £12,000 within a six-month period when you only owed £6,000 for the year just gone. No wonder people feel like they are being billed twice.

The important thing to understand is that the £6,000 in payments on account is not extra tax. It is an advance against your 2025/26 liability. When you file your 2025/26 return, those payments on account will be credited against your bill, and you will only need to pay the difference (called the balancing payment).

For more detail on how this all fits together with your filing, read our Self Assessment guide.

How Payments on Account Work Year by Year

Let me walk you through a multi-year example to show how the system operates.

Year 1: 2024/25

• Tax liability: £6,000
• Payments on account already made: £0 (first year)
• 31 January 2026: Pay £6,000 (balancing payment) + £3,000 (1st POA for 2025/26) = £9,000
• 31 July 2026: Pay £3,000 (2nd POA for 2025/26)

Year 2: 2025/26

• Tax liability: £7,000
• Payments on account already made: £6,000 (£3,000 + £3,000)
• Balancing payment: £7,000 - £6,000 = £1,000
• 31 January 2027: Pay £1,000 (balancing payment) + £3,500 (1st POA for 2026/27) = £4,500
• 31 July 2027: Pay £3,500 (2nd POA for 2026/27)

Year 3: 2026/27

• Tax liability: £5,000
• Payments on account already made: £7,000 (£3,500 + £3,500)
• Balancing payment: £5,000 - £7,000 = -£2,000 (refund)
• 31 January 2028: Receive £2,000 refund, pay £2,500 (1st POA for 2027/28)

Notice in Year 3, the tax liability dropped, so the payments on account were more than the actual tax due. HMRC refunds the difference. This is important — if your income fluctuates, your payments on account might overshoot, and you will get money back.

When Do Payments on Account Apply?

You need to make payments on account if both of the following conditions are met:

1. Your Self Assessment tax bill is more than £1,000
2. Less than 80% of your total tax liability was collected at source (e.g., through PAYE)

If you are employed and your employment income covers most of your tax liability, you may not need to make payments on account — even if your total bill exceeds £1,000.

For example, if your total tax bill is £5,000 but £4,200 was already deducted through PAYE, that is 84% collected at source. Since this exceeds 80%, you would not need to make payments on account.

This is why payments on account primarily affect sole traders, freelancers, and landlords whose income is not taxed at source. For a broader overview of how all of this connects, our Self Assessment deadlines guide lays out every important date.

How to Reduce Your Payments on Account

If you know your income for the current year is going to be significantly lower than the previous year, you can apply to reduce your payments on account. This is entirely legitimate and can ease your cash flow considerably.

You can reduce them through your online Government Gateway account or by filing form SA303.

However, be cautious. If you reduce your payments on account and it turns out your income was not lower than expected, you will face the full balancing payment plus interest on the underpayment. HMRC charges interest from the date the payment on account was originally due, not from when the balancing payment is due.

Here is my advice: only reduce your payments on account if you are genuinely confident your income has dropped. If you are unsure, it is better to pay the full amount and potentially receive a refund than to reduce them and face interest charges.

HMRC provides a form for this purpose. You can find information at GOV.UK — Understand your Self Assessment bill.

What Payments on Account Include and Do Not Include

Payments on account cover your Income Tax and Class 4 National Insurance liabilities. They do not include:

• Capital Gains Tax
• Student loan repayments
• Class 2 National Insurance
• Any tax on one-off or unusual income

These amounts are always paid as part of the balancing payment on 31 January, not through payments on account.

This means that if you have a significant capital gain in one year, it will not inflate your payments on account for the following year. Similarly, if you had a one-off source of income that will not recur, your payments on account might be higher than necessary — which is another reason you might want to apply to reduce them.

For more on how capital gains interact with Self Assessment, see our capital gains tax guide.

Strategies for Managing Payments on Account

Save monthly

The single best thing you can do is save for tax every month. Work out approximately 25-30% of your net income and transfer it to a dedicated savings account. By the time your tax bill arrives, you will have the funds ready.

With Accounted, I can give you a running estimate of your tax liability throughout the year, so you know exactly how much to set aside. Check out our pricing plans to see how this works in practice.

Budget for the first-year hit

If this is your first year of Self Assessment, prepare yourself for the January bill being approximately 150% of your actual tax liability. This is the one time where the system really stings, and the only way to handle it is to know it is coming and save accordingly.

Use a Direct Debit

Setting up a Direct Debit through your Government Gateway account means HMRC collects the payment automatically on the due date. You will not miss the deadline, and you will not face late payment penalties.

Consider a budget payment plan

HMRC offers a Budget Payment Plan where you can make weekly or monthly payments towards your tax bill throughout the year. This is different from a Time to Pay arrangement (which is for when you cannot afford to pay). A Budget Payment Plan is a proactive way to spread the cost and can be set up through your Government Gateway account.

File your return early

Filing your return early does not mean you have to pay early. But it does mean you know exactly what your bill will be, giving you maximum time to save or plan. You can file your return from 6 April — a full 10 months before the payment deadline.

What Happens If You Cannot Pay

If you are struggling to pay your Self Assessment bill (including payments on account), you have options:

Time to Pay arrangement — You can spread your payment over up to 12 months. If you owe less than £30,000, you can set this up online. For larger amounts, call HMRC on 0300 200 3822.

Apply to reduce payments on account — If your income has genuinely dropped, reducing your payments on account is the right move.

Pay what you can — Even if you cannot pay the full amount, pay as much as possible. Interest and penalties are calculated on the amount outstanding, so reducing the balance reduces the charges.

Whatever you do, do not simply ignore the bill. HMRC's collection process escalates over time, and they have significant powers to recover unpaid tax. Learn more about the consequences of late payment in our Self Assessment penalties guide.

Common Questions About Payments on Account

Can I opt out of payments on account? No. If you meet the criteria, payments on account are mandatory. You cannot choose to pay everything in one go in January instead.

Do payments on account ever stop? Yes. If your tax bill drops below £1,000, or if more than 80% is collected at source, payments on account will no longer be required.

What if I overpay through payments on account? HMRC will either refund the overpayment or offset it against your next bill. You can request a refund through your online account.

Are payments on account the same as Making Tax Digital quarterly updates? No. MTD quarterly updates are submissions of income and expense data. Payments on account are actual tax payments. They are separate systems, though both involve spreading your obligations across the year.

You can learn more about how MTD interacts with your filing obligations at GOV.UK — Making Tax Digital for Income Tax.

The Bottom Line

Payments on account are not HMRC billing you twice. They are an advance payment system designed to collect tax closer to when you earn your income. The first year is the toughest because you are paying the current year's tax and advance payments for the next year simultaneously.

Once you understand the system, you can plan for it. Save regularly, file early, and use good accounting software to keep track of your estimated liability. With the right preparation, payments on account become a manageable part of your annual tax routine rather than a January nightmare.

If you want someone keeping an eye on your numbers throughout the year, that is exactly what I do. Sign up for Accounted and let me help you stay on top of your tax obligations — payments on account included.

For step-by-step guidance, see our article on How to Amend a Self Assessment Tax Return.

Related reading: Capital Gains on Self Assessment: What to Report.

For step-by-step guidance, see our article on How to Calculate Your Class 4 National Insurance Accurately.

Accounted files your Self Assessment directly to HMRC, with your return pre-populated from your records. See Self Assessment filing →