The January Double Bill: Planning for Payments on Account in 2026/27

If you run your business as a sole trader or partnership, Self Assessment does not work like PAYE. There is no monthly withholding by an employer. Instead, HMRC collects tax after the year ends - and, once your profits pass a certain point, it also asks for payments on account. That is why a first good year can produce a January tax bill that is larger than the profit figure alone might suggest.

As of 8 November 2026, the next big date in the diary is 31 January 2027. For many sole traders, that is when the 2025/26 return is due, together with any balancing payment and the first payment on account for 2026/27.

Why the first bill is rarely the whole story

Payments on account are advance payments towards your next Self Assessment bill. They are not a separate tax. Each one is normally half of your previous year’s income tax and Class 4 National Insurance liability, after subtracting tax already deducted at source. They are due by 31 January and 31 July.

If your previous year’s bill was less than £1,000, or more than 80% of your tax was collected at source, HMRC will usually not ask for payments on account. But once you are above those thresholds, the system assumes your income will continue at a similar level.

A worked example

Assume a sole trader has a 2025/26 profit of £48,000. After the personal allowance and Class 4 National Insurance, the income tax and NIC bill is roughly £9,200. Because this is the first profitable return, no payments on account have been made for 2025/26.

On 31 January 2027, the trader pays the £9,200 balancing payment for 2025/26 plus the first payment on account for 2026/27. At 50% of the previous bill, that payment on account is about £4,600. The January cash requirement is therefore around £13,800.

The second payment on account, again about £4,600, is due on 31 July 2027. If 2026/27 profits are similar, there will then be a further balancing payment in January 2028, alongside the first payment on account for 2027/28. In other words, the first January bill is not the end of the story; it is the point at which the cycle begins.

If profits fall

Payments on account are based on the previous year, not a forecast. If you expect 2026/27 profit to be lower - for example because of a contract ending, illness or a quiet market - you can claim to reduce them. HMRC can accept a lower figure through your online Self Assessment account, or on form SA303.

Do not reduce payments on account simply to ease a short-term cash squeeze. If the reduction is not justified by the eventual figures, HMRC can charge interest and may ask you to make up the difference. A claim to reduce should be based on a realistic estimate, not wishful thinking.

Cash-flow checklist

• Build the tax liability into your forecast as soon as the year ends, not in January.
• Transfer a percentage of each payment you receive into a separate tax pot.
• Diary 31 January and 31 July, plus the 31 January filing deadline.
• Review the July payment once the current year’s figures are clearer.
• Include payments on account in your cash-flow plan, even if the current year is not yet finished.
• Keep records of any claim to reduce payments on account.
• Speak to your accountant before changing a payment on account, especially if profits are volatile.

Payments on account are predictable once you know the mechanics. The difficulty is usually timing, not the rule itself. A business that sets aside tax monthly and reviews the position each summer is far less likely to be caught out by the January double bill.