Payments on Account Explained

Payments on account catch many landlords off guard, particularly in the first year they apply. This article explains what they are, why HMRC requires them, and how they affect your tax bill.

What payments on account are

Payments on account are advance payments towards your tax bill for the current tax year. Instead of paying all your tax in one lump sum after the year ends, you pay it in instalments during and after the tax year.

Think of them as regular tax payments spread across the year, similar to how employees pay tax through PAYE each month.

When payments on account apply

HMRC sets up payments on account if both of these conditions are met:

Your tax bill (after deducting any tax paid through other sources like PAYE) exceeds £1,000
Less than 80% of your total tax bill has been collected through other sources (such as PAYE or tax deducted at source)

If you're a landlord with no other income, payments on account almost certainly apply to you.

How payments on account are calculated

Each payment on account is 50% of your previous year's tax bill.

Example

You submit your final declaration for 2024/25 in January 2026. HMRC calculates you owe £6,000 in Income Tax on your property income.

At the same time, HMRC sets up payments on account for 2025/26:

First payment on account: £3,000 (due 31 January 2026)
Second payment on account: £3,000 (due 31 July 2026)

This means you're paying £6,000 towards your 2025/26 tax bill while you're still in that tax year.

Why the first year can be a shock

Payments on account cause confusion in the first year they apply because you're essentially paying tax bills for two years at once.

Example: First year scenario

You've been letting property for several years but your income was low enough that you didn't owe much tax. In the 2024/25 tax year, your rental income increases significantly and your tax bill is £6,000.

In January 2026, when you submit your final declaration, you owe:

£6,000 balancing payment for 2024/25 (the year you're declaring)
£3,000 first payment on account for 2025/26 (the current tax year)

Total due: £9,000

Then in July 2026, you owe:

£3,000 second payment on account for 2025/26

This catches people off guard because they're used to paying tax once a year in January, not three times (January, January again, July).

Balancing payments and payments on account

Your balancing payment is the difference between:

What you actually owe for the tax year
What you've already paid through payments on account and other sources

If your income stays roughly the same each year, your balancing payment will be small (or zero) because the payments on account will have covered most or all of what you owe.

If your income increases, your balancing payment will be higher because the payments on account (based on the previous year) won't have covered the full amount.

If your income decreases, you may have overpaid and HMRC will refund the difference.

When payments on account are due

First payment on account: 31 January during the tax year
Second payment on account: 31 July following the end of the tax year

See Payment deadlines for full details.

Reducing payments on account if your income drops

If you know your income for the current year will be significantly lower than last year, you can ask HMRC to reduce your payments on account.

You do this through your HMRC online account.

Be cautious about reducing payments on account. If you reduce them too much and it turns out you owe more than you paid, you'll face a larger balancing payment (and potentially interest charges on the unpaid amount).

Warning

Provestor cannot reduce your payments on account. You must do this directly with HMRC through your online account.

Payments on account and Making Tax Digital

Payments on account work the same way under Making Tax Digital as they did under Self Assessment. The payment dates and calculation method haven't changed.

Your quarterly updates don't affect payments on account. They're still calculated based on your final declaration for the previous tax year.

For more information, see HMRC's guidance on payments on account.