What Are Payments on Account?

Payments on account are advance payments towards your next year's Self Assessment tax bill. HMRC asks for them when your tax bill (excluding any tax already deducted at source, like PAYE) is over £1,000. Each payment is half of your previous year's tax bill.

If your 2024/25 tax bill was £120,000, HMRC will ask for two payments on account for 2025/26: £60,000 by 31 January 2026 and £60,000 by 31 July 2026. Then the balancing payment for 2025/26 is due by 31 January 2027.

The logic is straightforward: HMRC does not want to wait 18 months for your tax. They want it in three roughly equal instalments.

Does the £100,000 Threshold Change Anything?

No. The payments on account system does not have a special rule for bills over £100,000. The same trigger applies: if your tax bill (net of tax deducted at source) is over £1,000, you make payments on account. The £100,000 figure just means you are making very large payments on account.

That said, a six-figure tax bill often comes with specific circumstances that change how you should approach payments on account. Let us walk through the most common ones.

When Payments on Account Are Not Required

There are two exceptions to the payments on account requirement. If either applies, you pay the full tax bill by 31 January with no advance payments.

  • Your tax bill is under £1,000. If your total tax liability after deductions is less than £1,000, no payments on account are needed. This is rare with a £100,000+ bill.
  • More than 80% of your tax was deducted at source. If you earn most of your income through PAYE employment and the balance from self-employment is small, the 80% rule may apply. For example, if your total tax bill is £120,000 but £100,000 was deducted through PAYE, the net amount is £20,000. That is under 20% of the total, so no payments on account are required.

If you are a director of a limited company drawing a salary through PAYE and taking dividends, the dividend tax is not deducted at source. So the 80% test usually fails, and payments on account will apply to the dividend tax portion.

Reducing Payments on Account If Your Income Has Dropped

Here is the most practical point in this article. If your income for the current year is significantly lower than the previous year, you can reduce your payments on account. HMRC lets you do this using form SA303, or online through your HMRC account.

Say your 2024/25 tax bill was £150,000. HMRC asks for payments on account of £75,000 each. But in 2025/26, your income has dropped sharply. You estimate your tax bill will be £60,000. You can reduce each payment on account to £30,000.

There is a risk. If you reduce your payments on account and your actual tax bill ends up higher, HMRC charges interest on the underpaid amount. The interest rate on late tax payments is currently 7.25% (as of early 2025). So only reduce payments on account if you are genuinely confident your income is lower.

As ICAEW qualified accountants, we see clients reduce payments on account every year. It is common. But we always advise them to keep a cash buffer in case their estimate is wrong.

How Payments on Account Interact With a £100,000+ Tax Bill

A six-figure tax bill often means you are a higher rate or additional rate taxpayer. That changes the maths on dividends, capital gains, and pension contributions.

If your tax bill includes a large capital gains element, payments on account are calculated on the total tax due. But capital gains can be lumpy. One year you sell a property and owe £80,000 in CGT. The next year you sell nothing. In that case, reducing your payments on account for the following year is sensible.

If your tax bill is driven by dividend income, remember that dividend tax is not deducted at source. So payments on account will apply to the full dividend tax amount. That can catch directors who pay themselves mostly in dividends and forget that HMRC expects advance payments.

If your tax bill includes a pension tax charge (for exceeding the annual allowance or lifetime allowance), that charge is included in the payments on account calculation. Same rules apply.

What If You Cannot Afford the Payments on Account?

This is a real problem for business owners with seasonal income or one-off windfalls. If you owe £100,000 in tax for 2024/25 and HMRC wants £50,000 on 31 January 2026 and another £50,000 on 31 July 2026, you need £100,000 in cash within 12 months.

If you cannot pay, do not ignore it. HMRC charges interest from the due date. They also charge late payment penalties: 5% of the unpaid amount after 30 days, another 5% after 6 months, and another 5% after 12 months. That adds up fast.

Instead, contact HMRC's Time to Pay team. They can agree a payment plan. For debts over £100,000, you will need to speak to the specialist team. They will ask for your income and expenditure, and you may need to provide a cash flow forecast. But they will usually agree a plan if you can show you can pay within 12 months.

You can also use our contact page to speak to us about negotiating a Time to Pay arrangement. We do this regularly for clients.

How Payments on Account Affect Your Self Assessment Deadlines

The deadlines do not change just because your bill is large. For the 2024/25 tax year:

  • First payment on account: 31 January 2026
  • Second payment on account: 31 July 2026
  • Balancing payment (if any): 31 January 2027

If you file your return early (before 31 January), you can see your exact tax bill and adjust your payments on account accordingly. Filing early is always a good idea if you have a complex return or a large bill.

What About Limited Company Directors?

If you are a director of a limited company and your only income is salary and dividends from your own company, you may not need to make payments on account at all. Why? Because your tax on salary is deducted through PAYE, and your dividend tax is often under £1,000 after the dividend allowance. But if your dividend income is substantial, the dividend tax will exceed £1,000 and payments on account will apply.

For directors with large dividend incomes, the same rules apply. If your 2024/25 dividend tax was £40,000, HMRC will ask for payments on account of £20,000 each. You can reduce them if your 2025/26 dividend income is lower.

If you are unsure how your dividend tax interacts with payments on account, read our director pay and dividends guide for a full breakdown.

Payments on Account and the Balancing Payment

Here is a worked example to make it concrete.

Your 2024/25 Self Assessment tax bill is £120,000. No tax was deducted at source. Your payments on account for 2025/26 are £60,000 each. You pay £60,000 on 31 January 2026 and £60,000 on 31 July 2026.

When you file your 2025/26 return, your actual tax bill is £110,000. You have already paid £120,000 in payments on account. HMRC refunds the £10,000 overpayment. Alternatively, if your actual bill is £130,000, you owe a balancing payment of £10,000 by 31 January 2027.

This is why reducing payments on account when your income drops is so important. Otherwise, you are lending HMRC money interest-free.

What If You Have a Partnership or Multiple Sources of Income?

If you are in a partnership, your share of the partnership profits is included in your Self Assessment. Payments on account are calculated on the total tax bill across all sources. So a partner with a £100,000+ tax bill from partnership profits, plus some rental income, will have payments on account on the combined total.

The same reduction rules apply. If your partnership profits drop, reduce your payments on account. Just make sure your estimate is reasonable.

How Making Tax Digital for Income Tax Self Assessment (MTD for ITSA) Changes Things

From April 2026, MTD for ITSA becomes mandatory for self-employed individuals and landlords with qualifying income over £50,000. From April 2027, it applies to those with income over £30,000. From April 2028, it applies to those with income over £20,000.

Under MTD for ITSA, you will need to file quarterly updates to HMRC using compatible software. Your payments on account will still be calculated annually based on your final return. But the quarterly updates give you and HMRC a clearer picture of your income throughout the year. That may make it easier to estimate your tax bill and adjust payments on account accurately.

If you are not yet using accounting software, now is the time to start. Xero and FreeAgent are the most common choices for small businesses and contractors. Our services page covers how we help clients transition to MTD-compliant software.

Can You Make Voluntary Payments on Account?

Yes. If you know your tax bill will be large, you can make voluntary payments to HMRC before the due dates. This avoids interest charges on late payments. You can pay through your HMRC account or by bank transfer.

Voluntary payments are not the same as payments on account. They are just early payments towards your eventual tax bill. HMRC will apply them to your account and you will see the credit when you file your return.

This is useful if you have a cash surplus one quarter and want to reduce the burden later. Many business owners do this to smooth cash flow.

What About Interest on Overpaid Payments on Account?

If you overpay your payments on account (because your actual tax bill is lower), HMRC pays interest on the overpayment. The interest rate is currently 3.25% (as of early 2025). That is lower than most savings accounts. So it is better to avoid overpaying if you can estimate your tax bill accurately.

But if you do overpay, you get the money back with interest. It is not a penalty. Just inefficient.

When to Speak to an Accountant

If your Self Assessment tax bill is over £100,000, the payments on account system will demand significant cash within 12 months. Getting the estimate right matters. Overpay and you lose interest. Underpay and you pay interest and penalties.

If your income is volatile, your tax bill changes year to year, or you have multiple income sources (self-employment, dividends, capital gains, rental income), speak to an accountant before filing your return. We can help you estimate your payments on account accurately and avoid surprises.

Contact our team through the contact page or call us to discuss your situation. We handle six-figure tax bills regularly and know how to structure payments to keep your cash flow healthy.