Payments on account explained for UK tradespeople

How the amount is worked out

HMRC says the payments are calculated from your estimated earnings, usually what you earned the previous year. Each payment is usually half the tax you owed the previous year.

If you earn more than that estimate, there can still be tax to pay on top. HMRC calls that a balancing payment. It is the total tax you owe, minus the payments on account you have made. It is due by midnight on 31 January the following year. HMRC says it also includes anything you owe for capital gains or student loans, if you are self-employed.

If you earn less than the estimate, HMRC says you may be able to claim a tax refund.

The page gives its own example, and I am leaving the pounds as HMRC wrote them. It is not a typical trade bill. The bill for the 2023 to 2024 tax year in that example is £3,000. Payments on account, based on the year before, were two payments of £900, so £1,800 in total, paid on 31 January 2024 and 31 July 2024. They did not cover the bill. The balancing payment was £1,200, which is £3,000 minus £1,800. The amount due by midnight on 31 January 2025 was that £1,200 plus the first payment on account towards the next year, £1,500, which is half of £3,000. HMRC says the total paid by that January date in the example is £2,700. The second £1,500 was due on 31 July 2025.

The same page shows the shape of a first return, where you made no payments on account last year. In that example the £3,000 bill means £4,500 due by midnight on 31 January: the full £3,000 for the year, plus the first £1,500 towards the next bill. The second £1,500 is 31 July. If the next year's tax is more than the two payments on account added together, a balancing payment is due the following 31 January as well.

For the return due on 31 January 2027, the tax year is 6 April 2025 to 5 April 2026. HMRC's deadlines page (opens in a new tab) says you pay the Self Assessment tax for that year by 11:59pm on 31 January 2027, and that there is a second payment deadline of 31 July if you make payments on account. If you made payments on account on 31 January 2026 and 31 July 2026, 31 January 2027 can hold any balancing payment still owed for 2025 to 2026 and the first payment on account towards 2026 to 2027. The second payment on account for that next year is 31 July 2027. On a first return, January is the full tax for the year plus that first payment on account.

HMRC's check is on the online account: view the latest return, then view statements. A paper return is checked on the last Self Assessment statement. Copy the amounts from there. Do not ask a chat tool what you owe.

When you can ask for a lower payment

If you know the tax you owe is going to be lower than last year, HMRC says you can ask them to reduce the payments on account. You do it online or by post. You include the amount you expect to make, and HMRC uses that to work out the new payments.

Online, the payments page says: sign in, view your latest Self Assessment return, and select "Reduce payments on account". By post, send form SA303 (opens in a new tab) to your tax office.

The SA303 page says you can apply to reduce the amounts you have been asked to pay if:

• your business profits or other income go down
• the tax relief you are entitled to goes up
• tax deducted at source is more than the previous tax year

You must claim by 31 January after the end of the tax year. HMRC's example is 31 January 2025 for the 2023 to 2024 tax year. On that rule, a claim for the 2026 to 2027 tax year is due by 31 January 2028. That is after the 31 July 2027 payment, not before it.

To complete the form you need the name and address of your HMRC office, from the top of your statement, and either your Self Assessment Unique Taxpayer Reference or an employer reference. Do not paste the UTR into a chat. The online form needs you to sign in. The postal form cannot be saved part-way through, so have the figures together before you start.

If you reduce the payments and the tax bill is higher than you expected, HMRC charges interest on the difference. HMRC's interest rates page (opens in a new tab), read on 17 October 2026, lists late payment interest on Income Tax at 7.75% from 9 January 2026. The same page says that from 6 April 2025 late payment interest is the Bank of England base rate plus 4%. Check the page before you rely on 7.75%. The rate moves.

A reduction is a claim you make because you believe the bill will be smaller. It is not a way to push January back because the materials invoice is due. If you are not sure the bill will be smaller, leave the figures HMRC has set and speak to an accountant.

The cash, without a made-up percentage

The statement is the number. I am not going to give you a percentage of turnover to put aside. I have not calculated your bill, and a round percentage would be a guess.

Three dates are worth writing down when they are on your statement:

• 31 January, which can be last year's balancing payment and the first half of next year's bill on the same day
• 31 July, the second half
• the day you decide whether to ask for a reduction, which has to be inside the claim deadline on the SA303 page

I keep the July figure where I will not spend it on the next job. Once HMRC has set it, it is not spare money for materials. If the year looks busier than last year, budget for a balancing payment on top of the two instalments. HMRC's page says that in words. Your own calculation says it in pounds.

If the year looks quieter, the reduction route is the one above, and interest is the cost of cutting the payment and then owing more. A refund, where you earned less than the estimate and have overpaid, is also on that page. The timing of a refund is not given as a number of weeks there, so I am not inventing one.

CIS deductions are a different sum. They come off the tax on the return. They are not themselves a payment on account. How a sole trader records them, and how a limited company claims anything left at the end of the year, is in the CIS tax refund guide. The rate on the statement is in the CIS deductions guide. What HMRC allows you to deduct before the profit exists is in the allowable expenses guide.

Making Tax Digital quarterly updates are a separate calendar. The January 2027 payment on this page is still the Self Assessment date on the deadlines page. The quarterly dates, for people who have to use the software, are in the Making Tax Digital guide.

Explain these payments on account in plain English. UK English. Use only the figures I type. Do not change a number. Do not tell me to reduce a payment. Do not invent a percentage of turnover to save. If a figure is missing, write MISSING.

Tax year the payments relate to:
Tax owed last year, from my statement:
First payment on account and its date:
Second payment on account and its date:
Balancing payment the calculation shows, or "none":
Total my statement says is due on 31 January:

Read the answer against the statement. If a pound has moved, use the statement. The checklist is the tick-list for the 2025 to 2026 return. The weekly email is where I put the next date that is worth knowing about.