Payments on account are advance tax payments made twice a year — on 31 January and 31 July — based on the previous year's Self Assessment tax bill. They exist because HMRC collects income tax and Class 4 NI in arrears, and they ensure that growing businesses do not accumulate a year's worth of unpaid tax before settling. Understanding how they work is essential for sole traders who want to avoid a cash crisis in January.
Updated 2026/27 · SoleTraderTaxCalculator.co.uk · Editorial standards · Methodology
When you file your Self Assessment return for a completed tax year and your total tax bill exceeds £1,000 — and less than 80% of your tax was collected at source through PAYE — HMRC requires you to make two payments on account for the following tax year. Each payment is exactly 50% of your total Self Assessment liability for the year just completed.
These payments are based on the prior year's bill, not an estimate of what you will actually owe in the current year. If your income has grown significantly, the on-account payments may understate your eventual liability and a balancing payment will be due the following January. Conversely, if income has fallen, you may overpay through the year and receive a refund after filing.
The payments on account cover income tax and Class 4 NI but do not include student loan repayments, which are collected separately through the balancing payment process rather than through on-account instalments.
A first-year sole trader — one who has not previously filed Self Assessment — will not face any payments on account when their first January deadline arrives. Their bill is simply the tax owed for their first trading year. However, the return they file for that first year sets the level of on-account payments going forward.
After the first year with a bill above £1,000, the January settlement deadline becomes three things simultaneously: the balancing payment for the prior year (the amount still outstanding after any on-account payments already made), plus the first payment on account for the current year, plus potentially any other adjustments. In a year of income growth, this can mean paying close to 150% of the current year's estimated annual tax in a single January.
Example: if your 2025/26 Self Assessment bill is £6,000, you would have paid £3,000 on 31 January 2026 (first payment on account) and £3,000 on 31 July 2026 (second payment on account). If your 2026/27 income is the same, the remaining balance for 2025/26 is zero and the January 2027 demand is simply the new first payment on account of £3,000. But if your income grew and the 2026/27 bill is £8,000, you pay a £2,000 balancing payment for 2026/27 plus a new first payment on account of £4,000 — a combined £6,000 in January.
31 January: first payment on account for the current tax year, plus the balancing payment for the previous tax year. This is the main deadline and typically the largest payment due in any given year for established sole traders.
31 July: second payment on account for the current tax year, equal to the same amount as the January on-account payment. There is no filing requirement on this date — it is a payment-only deadline.
Interest runs from the day after each deadline on any unpaid amount. Late payment interest is currently charged at HMRC's published rate, which links to the Bank of England base rate. Late payment surcharges of 5% apply at 30 days, 6 months and 12 months after the deadline.
If you know your income in the current year will be lower than the previous year — because of reduced work, a planned gap, or business circumstances changing — you can apply to HMRC to reduce your payments on account. This is done via form SA303, available on GOV.UK, or through your HMRC online account.
The reduction is based on your own estimate of the current year's likely tax bill. You must have a reasonable basis for the estimate. If you reduce the payments and your actual income turns out higher than you estimated, HMRC will charge interest on the difference between what you paid on account and what you should have paid. The risk of under-estimating is therefore an interest charge, not a penalty — but interest accrues from the original due date.
Reducing payments on account is a useful cashflow tool, particularly for sole traders with variable income or a known quiet year ahead. It avoids tying up cash in overpayments that would simply be refunded after filing. However, the calculation must be honest and documented — do not reduce simply to improve short-term cashflow if the underlying income expectation does not support it.
The monthly set-aside calculated on this site covers your estimated annual income tax and Class 4 NI bill. If you accumulate this reserve consistently throughout the year, you will have enough to cover your January payment — which includes both the balancing amount and the first payment on account.
The most reliable approach is to treat the tax reserve as untouchable from the day income arrives. Open a separate savings account specifically for the HMRC reserve and transfer the monthly set-aside immediately. When January arrives, the cash is already there regardless of whether the bill has come in slightly higher or lower than expected.
For the first year payments on account kick in, set aside slightly more than the calculator suggests — building an extra buffer of one to two months' reserve is a practical cushion. Once the on-account cycle is established and your income is broadly stable, the cycle becomes predictable and manageable with normal monthly discipline.
Yes, if your previous year's Self Assessment bill exceeded £1,000 and less than 80% was collected through PAYE. If your bill drops below £1,000 in any year, payments on account are not required for the following year.
HMRC will credit the overpayment to your account after you file your return. If the credit is positive, you can request a repayment to your bank account or leave it as a credit toward the next year's liability.
No — the January and July dates are fixed HMRC deadlines and cannot be changed. However, you can apply to reduce the amount of each payment if you expect income to be lower than the previous year.
The calculator shows your estimated annual tax bill and monthly set-aside. It does not calculate the on-account amounts directly, but the annual bill figure tells you what 50% — the size of each on-account payment — will be.
Not in the first year of trading, since there is no prior year bill to base them on. If the first year's Self Assessment bill exceeds £1,000, on-account payments begin from the second year — meaning January of the second year can be significantly larger than expected.
The sole trader tax calculator turns this guidance into a concrete monthly take-home and tax reserve estimate, based on 2026/27 HMRC rates. Enter taxable profit — not turnover.
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