Payments on account calculator (UK)

What are payments on account?

Payments on account are HMRC's way of collecting next year's tax in advance. Once your Self Assessment bill goes over £1,000, HMRC assumes you will earn the same next year and asks you to pay half of that estimated bill twice a year: once on 31 January and once on 31 July. They are not extra tax, they are a deposit against next year's bill. When you file next year's return, what you actually owe is compared with what you already paid, and you either pay the difference (a balancing payment) or get it back.

The rule that catches people out: payments on account do not apply if your bill is £1,000 or less, or if 80% or more of your tax is already collected at source (for example through PAYE on an employed job). Most full-time sole traders sail past both tests in year one.

Why is the first 31 January so painful?

In your first year of Self Assessment nothing has been paid in advance, so on 31 January you owe the whole of last year's bill AND the first payment on account for the current year. That is 150% of your bill in one payment. On profit of £40,000 the 2026/27 bill is £7,131.80, but the 31 January 2028 payment is £10,697.70. If nobody warned you, that extra 50% lands as a genuine shock. From year two onwards the payments even out, because each year's bill has mostly been prepaid.

How the numbers are worked out

• Income tax (2026/27): nothing on the first £12,570 (personal allowance), 20% up to £50,270, 40% up to £125,140, 45% above. The allowance shrinks by £1 for every £2 of profit over £100,000.
• Class 4 National Insurance: 6% on profit between £12,570 and £50,270, then 2% above that. Class 2 NI is no longer charged (it was abolished for 2024/25 onwards).
• Payments on account: half of this year's total bill, due 31 January and 31 July, whenever the bill is over £1,000.
• Set-aside: the total bill divided by 12 for a monthly amount, or divided by your turnover for a percentage to skim off every invoice the day it is paid.

Rates last checked: 15 July 2026. Assumes profit is your only income and no student loan; both can change the numbers.

Can I reduce my payments on account?

Yes. If you know next year's profit will be lower, you can ask HMRC to reduce your payments on account, either in your tax return or through your online account (form SA303 by post). Be honest: if you reduce them too far, HMRC charges interest on the shortfall backdated to the original due dates.

What happens if my profit drops?

You will have overpaid, and HMRC refunds the difference or sets it against your next bill after you file. That is the flip side of the system: it front-loads the pain in year one but self-corrects each year through the balancing payment.

How much should I set aside for tax as a sole trader?

A common rule of thumb is 25% to 30% of profit, but the honest answer is: run your own number. On £40,000 profit the real figure is about 18% of turnover; on £130,000 it is over 32%. Use the calculator above, then move that percentage of every paid invoice into a separate account the same day. The gated spreadsheet does the skim for you.

Do payments on account cover everything I owe?

They cover income tax and Class 4 National Insurance. They do not include capital gains tax or student loan repayments; those are settled with the 31 January balancing payment. If you also have PAYE income, tax collected at source reduces what Self Assessment collects.

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