Every January we hear the same thing: "Why is my tax bill so much higher than I expected?" The answer is usually payments on account.
If this is your first or second year of Self Assessment, read this before 31 January.
What you pay on 31 January
Your 31 January 2026 bill can have two parts:
The balancing payment for 2024/25. This is the tax you still owe for the year that ended on 5 April 2025.
Your first payment on account for 2025/26. This is an advance payment towards this tax year, usually half of your 2024/25 bill.
Then on 31 July 2026 you make a second payment on account, also usually half of your 2024/25 bill.
Payments on account cover Income Tax and Class 4 National Insurance. They don't include Capital Gains Tax, student loan repayments or Class 2 National Insurance, which are paid with the balancing payment.
A first-year example
Priya started as a self-employed graphic designer in 2024. Her tax for 2024/25 is £4,000. It is her first year, so she has made no payments on account yet.
31 January 2026: Balancing payment for 2024/25, £4,000
31 January 2026: First payment on account for 2025/26, £2,000
31 July 2026: Second payment on account for 2025/26, £2,000
So in January she pays £6,000. She was expecting to pay £4,000. If her 2025/26 tax turns out to be different, the difference is settled in January 2027.
This is a one-off catch-up. From then on, she is paying each year's tax in two halves, plus or minus a balancing payment.
When you don't need to make payments on account
You don't need to make them if your last Self Assessment bill was under £1,000, or if more than 80% of your tax was already collected another way, such as through PAYE.
Can I reduce my payment on account?
Yes, if you expect your 2025/26 bill to be lower than 2024/25, for example because your profits have fallen. You can claim to reduce it in your HMRC online account or on form SA303.
Only reduce it to what you expect to owe. If you reduce it too far, HMRC charges interest on the shortfall.
What if I can't pay it all?
Don't ignore it. Contact HMRC before or soon after 31 January.
You may be able to set up a payment plan, known as Time to Pay, and pay what you owe in instalments.
In many cases you can set this up online, once your return has been filed.
If HMRC agrees a plan before the first penalty date and you keep to it, you can avoid the 5% late payment penalties. Interest still applies.
As of today, HMRC's late payment interest rate is 7.75%.
Key dates and penalties
31 January 2026: file your 2024/25 return online and pay the balancing payment and first payment on account. A late return gets an automatic £100 penalty, even if you owe no tax.
30 days after 31 January: if 2024/25 tax is still unpaid, a 5% late payment penalty is added. Further 5% penalties follow at 6 and 12 months. These penalties apply to the balancing payment. A late payment on account is charged interest.
31 July 2026: second payment on account for 2025/26.
How to avoid the surprise next time
Set aside a share of your income each month in a separate savings account.
File your return early, so you know your bill months in advance.
Ask us for an estimate of your next bill.
Summary
Your first January bill can include last year's tax plus half of this year's tax in advance. It is a one-off catch-up, but it can be a shock. If you can't pay it all, talk to HMRC about a payment plan before penalties build up.
If you would like us to check your figures or help with a payment plan, book a call or contact us.