Guide

Payments on account explained for the self-employed

Payments on account are advance payments towards your next Self Assessment bill, and often surprise new sole traders and creators in year two. AFE Accountants helps self-employed people in the UK plan for them, check whether they apply, and decide whether a reduction makes sense.

By Adam Feyzi FCCA Published 17 October 2026 Updated 17 October 2026

What are payments on account?

Payments on account are advance payments towards your tax bill for the current tax year. HMRC collects them before the year’s figures are final. They apply to Self Assessment, which most sole traders and many creators use.

GOV.UK explains that there are usually two payments on account each year. Each one is normally half of your previous year’s tax bill [VERIFY WITH HMRC / ADAM].

The idea is that tax is paid closer to when income is earned. In practice, it means paying for this year while you are still settling last year.

When does HMRC ask for them?

HMRC asks for payments on account when your last bill was above a set level [VERIFY WITH HMRC / ADAM]. It does not ask if most of your tax was collected another way, such as your tax code [VERIFY WITH HMRC / ADAM].

That is why many employees who start a side business never see them at first. It is also why they can appear suddenly once self-employed income becomes your main income.

Whether they apply to you depends on your own figures. AFE checks your previous return before you plan around them.

What is the balancing payment?

The balancing payment settles any tax still owed for the year once your return is filed. GOV.UK explains how to pay your Self Assessment bill, including the balancing payment.

It is the difference between the tax you actually owe and the payments on account you have already made. If your payments on account were more than your final bill, HMRC owes you the difference instead.

The balancing payment is usually due on the same date as the first payment on account for the next year [VERIFY WITH HMRC / ADAM]. Those two amounts landing together are what make one date in the calendar so heavy.

Why does the second year feel so expensive?

In your first year of self-employment, you usually pay nothing until your first return is due. Then the first bill arrives with a payment on account for the next year on top [VERIFY WITH HMRC / ADAM].

This is the cash-flow shock many new sole traders and creators describe. You may owe a full year’s tax plus half of the next year’s estimate in one go. If you have not set money aside, it can feel like being taxed twice.

Creators feel this sharply because income often jumps in a single good year. A big brand deal year can push up both the balancing payment and the payments on account that follow.

Can you reduce payments on account?

Yes, if you expect your tax bill to fall. GOV.UK says you can ask HMRC to reduce them online in your Self Assessment account or by form [VERIFY WITH HMRC / ADAM]. You need to give the amount you expect to owe.

Reducing them is sensible when income has genuinely dropped, for example after a quiet year or a change in work. It is not a way to delay tax you will owe anyway.

If you reduce them too far and your final bill is higher, HMRC charges interest on the difference [VERIFY WITH HMRC / ADAM]. AFE reviews your figures before suggesting a reduction, so any request is based on a realistic estimate.

What does the payment timeline usually look like?

The table shows the usual order of events for someone in their first two years of self-employment. It uses no figures, because your amounts depend on your own income and tax.

The usual order of Self Assessment payments for a new sole trader or creator
Event	What it covers	Usually
First tax year of self-employment ends	Your first year of trading income	At the end of the tax year [VERIFY WITH HMRC / ADAM]
First return and balancing payment	Tax for your first year	By the online filing deadline [VERIFY WITH HMRC / ADAM]
First payment on account	Half of next year’s estimated bill	Same date as the balancing payment [VERIFY WITH HMRC / ADAM]
Second payment on account	The other half of the estimate	Around six months later [VERIFY WITH HMRC / ADAM]
Second return and balancing payment	Any tax still owed for the year	By the next online filing deadline [VERIFY WITH HMRC / ADAM]
Reduction request, if needed	Lower payments when income falls	Before the payments are due [VERIFY WITH HMRC / ADAM]

GOV.UK lists current Self Assessment deadlines. Check them each year, because the dates are tied to the tax year.

How can you plan for payments on account?

The simplest habit is to move a share of every payment you receive into a separate savings account. The right share depends on your income and expenses, so ask your accountant to estimate it.

Filing your return early does not change the payment dates. It does tell you what you owe sooner, which leaves more time to plan.

Keep a separate account for tax money and do not dip into it.
Update your estimate after any large brand deal or contract.
Note both payment dates in your calendar each year.
Ask about a reduction only when income has genuinely fallen.
Keep the HMRC statement that shows each amount due.

How can AFE help with payments on account?

AFE Accountants prepares Self Assessment returns for sole traders and creators across the UK. AFE is led by Adam Feyzi FCCA, a Fellow of the ACCA.

Creators can use the accounts and tax returns service, and other self-employed people can use the tax and VAT service. Both cover payments on account and planning for the next bill.

You can read more on the creators page. The first consultation is free, and you can book it here.

Sources

Why is my second tax bill so much bigger than my first?

Usually, because it includes two things at once. You pay the balancing payment for the year just ended, plus the first payment on account towards the current year. In your first year of self-employment there were no payments on account to reduce that bill. The pattern evens out in later years, as long as your income stays fairly steady.

Can I stop paying payments on account if my income falls?

Yes, you can ask HMRC to reduce them if you expect a lower tax bill. You can do this online in your Self Assessment account or by form. You must give a realistic estimate of what you expect to owe. If you reduce them too far and owe more in the end, HMRC charges interest on the shortfall.

Do I get money back if I overpay on account?

Usually, yes. If your payments on account add up to more than your final tax bill, HMRC owes you the difference once your return is filed. The overpayment may be repaid or set against a future bill. How it is handled depends on your account, so check your Self Assessment statement after filing your return.

Do payments on account apply to employees with a side business?

Sometimes. HMRC does not ask for them if your last bill was small. The same applies if most of your tax was collected another way, such as through your tax code. Once self-employed income grows, they can start to apply. Whether they apply to you depends on your own figures from the previous return, which an accountant can check.

Awaiting review by Adam Feyzi FCCA Updated 17 October 2026 [REVIEW PENDING: Adam Feyzi to approve this page]

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