Payments on Account: How Big Your January Tax Bill Is, and When You Can Cut It

£8,747.70. That’s what a self-employed tradesperson on £35,000 profit, with no tax taken off during the year, owes HMRC on 31 January 2027 if last year’s bill was small. A CIS subcontractor on exactly the same profit owes nothing that day and gets a refund instead. The difference is payments on account: advance payments towards next year’s tax, which HMRC asks for once your bill reaches £1,000, unless more than 80% of it was already taken off at source.

Below are both January bills worked out line by line, then when it makes sense to ask HMRC for smaller payments, and what it costs if you cut them too far.

What payments on account are

Self Assessment is HMRC’s system for people whose tax isn’t all taken through PAYE, including every sole trader. Payments on account are part of it. They’re two advance payments towards the current year’s income tax and Class 4 National Insurance, due on 31 January in the tax year and 31 July after it. They’re a legal requirement, not an HMRC request you can ignore. The rule is in section 59A of the Taxes Management Act 1970, with the thresholds in the Income Tax (Payments on Account) Regulations 1996, as amended.

Each payment is half of last year’s income tax and Class 4, after taking off any tax already deducted at source. Some things never go into them: Class 2 National Insurance, which has been voluntary since April 2024, student and postgraduate loan repayments, and capital gains tax. Those go into the balancing payment on 31 January instead.

So the 31 January 2027 bill can hold three things at once: the balancing payment for 2025-26, the first payment on account for 2026-27, and anything outside them, such as a student loan. HMRC’s own guide to understanding your Self Assessment bill sets out the same structure.

The two tests that switch payments on account off

You don’t make payments on account for 2026-27 if either of these is true of your 2025-26 tax return:

• the income tax and Class 4 still owed after deductions at source came to less than £1,000;
• more than 80% of your income tax and Class 4 was already paid at source, through PAYE or CIS deductions.

Both tests look at last year’s figures. That’s why a strong first full year of trading can bring the biggest January. The year before was under £1,000, so nothing was paid in advance. Now the whole bill, and half of it again, fall due on the same day.

How CIS deductions count

The 20% a contractor takes from your labour under the Construction Industry Scheme isn’t a cost. Section 62 of the Finance Act 2004 treats it as income tax you’ve paid, and any amount beyond your income tax counts towards your Class 4. It goes in box 38 of the short self-employment pages of your return, and HMRC sets it against your bill. Our guide to CIS since April 2026 covers how the deductions are worked out and how to keep the statements that prove them.

For many subcontractors on basic-rate profits, that settles the question. A full year of 20% deductions on labour can cover more than 80% of the bill, and sometimes more than all of it, as the example below shows.

Two January bills on the same profit

Here are two illustrative tradespeople, each with £35,000 profit in 2025-26, on the income tax bands for England, Wales and Northern Ireland. One is a CIS subcontractor who invoiced £38,000 of labour and had £7,600 deducted. The other is a sole trader working for private customers, with nothing deducted, whose first part-year of trading in 2024-25 made a profit of £15,000. That gave a bill of £631.80, under £1,000, so they made no payments on account for 2025-26.

The sole trader goes from £631.80 last January to £11,663.60 within six months. Nothing about the trade changed except a full year of profit. The subcontractor’s CIS deductions came to more than the whole bill, so the relevant amount is nil and both tests switch payments on account off.

Scottish taxpayers pay income tax on different bands, so their figures differ, though Class 4 is the same across the UK. And the CIS result depends on the deductions. An unregistered sub, on 30%, would get a bigger refund. A sub with gross payment status has nothing deducted, so they’re in the sole trader’s position.

Where the 80% test does the work

The £1,000 test catches most small bills. The 80% test matters for bigger earners. Take a CIS subcontractor with £66,000 profit and £14,000 deducted during 2025-26. Their income tax and Class 4 come to £16,408.60, so they still owe £2,408.60 in January, well over £1,000. But CIS covered 85.3% of the bill, which is more than 80%, so no payments on account follow. Their 31 January bill is the £2,408.60 and nothing more.

Mixed work changes that. A sub who also takes private jobs, where nobody deducts CIS, can drop below 80% and find payments on account switched on.

When you can ask HMRC to cut them

Payments on account are based on last year, so they can be too high when this year is quieter. You can apply to reduce them if your profits are going down, your tax reliefs are going up, or more of your tax will be deducted at source. That last ground covers a trader moving from private work to CIS jobs. HMRC can’t refuse a claim that’s properly made.

Make the claim online, through your HMRC online account: open your latest Self Assessment return and choose “Reduce payments on account”. Or fill in form SA303 and post it. The HMRC app lets you check and pay what you owe but has no option to reduce. For the 2026-27 payments, you have until 31 January 2028 to claim, and if you’ve already paid, the overpayment comes back with interest.

What cutting them too far costs

Suppose the sole trader above expects 2026-27 profit of £25,000 and cuts each payment from £2,915.90 to £1,615.90. The year ends at £30,000 instead, which makes each correct payment £2,265.90. That’s £650 short twice. HMRC charges late payment interest on each shortfall from its original due date, at 7.75% a year at the time of writing. Paid off with the balancing payment on 31 January 2028, that’s about £76 of interest.

A penalty is a different matter. Section 59A allows one only where the claim was fraudulent or negligent. HMRC’s manual says it isn’t sought where you acted in good faith and got the sums wrong, or relied on information that later changed. A late payment on account attracts interest, not the 5% late payment penalties that apply to the balancing payment.

What isn’t changing, and what will

Making Tax Digital doesn’t move the dates. HMRC told people using it that payment on account dates “have not changed”, and our guide to Making Tax Digital for Income Tax covers what does change. If you’re on it, check the new service as well as your Self Assessment account, because that’s where your payments may show.

Further out, payments will come more often. HMRC’s summary of responses (28 October 2026) confirmed that from April 2029 people who make payments on account will pay during the year, with automatic payments the default. January and July 2027 don’t change.

So the decision rule for January is short. Take your 2025-26 income tax and Class 4, and subtract anything CIS or PAYE already paid. If what’s left is under £1,000, or under a fifth of the total, January is just the balancing payment. If not, half of it again lands on 31 January and the same on 31 July. Cut it only when you have a real reason to expect a smaller year, and write that reason down when you claim. The 31st falls on a Sunday this time, so a cheque or Bacs payment needs to reach HMRC by Friday 29 January; Faster Payments and cards work up to the day itself. And if what stands between you and that bill is a main contractor paying late, you can charge them late payment interest.