Payments on Account Explained (And Why MTD Doesn't Change Them)
What payments on account are, how HMRC calculates them, the 31 January and 31 July dates, when you can reduce them, and why Making Tax Digital changes reporting but not when you pay.
The short answer
Payments on account are advance instalments toward your next tax bill. If your last Self Assessment bill was over £1,000 and less than 80% was collected at source, you pay two instalments — each 50% of last year's tax — on 31 January and 31 July, with any balance settled the following 31 January. MTD changes how you report, not these payment dates.
Payments on account catch out a lot of newly self-employed people — often as a nasty surprise in the first January. Here's how they work, and why MTD doesn't change them.
What they are
Payments on account are advance instalments toward your next year's income tax and Class 4 National Insurance. HMRC assumes next year's bill will be similar to this year's, so it collects it in two chunks up front.
When they apply
You make payments on account if:
- your last Self Assessment bill was more than £1,000, and
- less than 80% of your tax was collected at source (e.g. via PAYE or CIS deductions).
If either isn't true, you don't make them.
The dates and amounts
| Date | Payment |
|---|---|
| 31 January | Balancing payment for last year + first payment on account (50% of last year's tax) |
| 31 July | Second payment on account (the other 50%) |
| Next 31 January | Balancing payment (actual bill minus the two instalments) + next year's first instalment |
Example. Your 2026/27 tax is £4,000. On 31 Jan 2028 you pay £4,000 plus £2,000 (first instalment for 2027/28). On 31 Jul 2028 you pay another £2,000. When your 2027/28 bill is finalised, you settle the difference.
The first-year sting
In your first self-employed year you can effectively pay 150% of your bill in one January — the full year plus the first instalment of the next. It's not extra tax, it's timing, but plan cash flow for it.
Reducing your payments on account
If you expect lower income, you can apply to reduce your payments on account. Be realistic: reduce them too far and HMRC charges interest on the shortfall.
Why MTD doesn't change this
Making Tax Digital changes reporting — four quarterly updates and a final declaration — not payment. The 31 January / 31 July dates and the payments-on-account mechanism are unchanged. Your quarterly updates don't trigger quarterly tax payments.
Key takeaways
- Payments on account are advance instalments — 50% of last year's tax each.
- Due 31 January and 31 July if your bill was over £1,000 and not mostly taxed at source.
- You can reduce them on a realistic estimate (interest applies if too low).
- MTD changes reporting, not payment dates.
This article is general information, not tax advice. Check the current rules at gov.uk or speak to your accountant.
Frequently asked questions
What are payments on account?
Advance payments toward your next year's tax bill, each equal to half of your previous year's tax. They're due on 31 January and 31 July, with a balancing payment the next 31 January to true things up.
Who has to make payments on account?
You do if your last Self Assessment bill was more than £1,000 and less than 80% of your tax was collected at source (for example through PAYE). Below £1,000, or mostly taxed at source, you don't.
Can I reduce my payments on account?
Yes, if you expect your income (and tax) to be lower than last year, you can apply to reduce them. But if you reduce them too far, HMRC charges interest on the shortfall, so base it on a realistic estimate.
Does MTD change when I pay?
No. MTD changes reporting — quarterly updates and a final declaration — but the payment dates (31 January and 31 July) and the payments-on-account system stay the same.
Related reading
Class 2 and Class 4 National Insurance for the Self-Employed
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