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Taxation (UK) · The systems for self-assessment and the making of returns

Payments on Account and Balancing Payments in TX-UK

Updated 11 October 2026 · Fact-checked

Payments on account are two advance payments of income tax and Class 4 NIC, each 50% of last year's liability not collected at source. They are due 31 January in the tax year and 31 July after it. Any remaining tax, plus capital gains tax, is the balancing payment due the following 31 January.

Understand Payments on Account and Balancing Payments

Self-employed people and others with untaxed income do not pay all their tax after the year ends. HMRC wants some of it in advance. This is done through payments on account.

Each payment on account is 50% of the previous year's income tax and Class 4 NIC liability, after deducting tax collected at source such as PAYE. The first is due on 31 January during the tax year. The second is due on 31 July after the tax year ends. So for 2025-26 they fall on 31 January 2026 and 31 July 2026.

Once the year is over, the actual liability is known. The balancing payment is the actual income tax and Class 4 NIC for the year, less the payments on account made and less tax deducted at source. It is due on 31 January after the tax year, which is 31 January 2027 for 2025-26. Capital gains tax for the year is also due on that date. It never forms part of payments on account.

You do not need payments on account in every case. They are not required if last year's income tax and Class 4 NIC liability, net of tax deducted at source, was below £1,000. They are also not required if at least 80% of last year's income tax and Class 4 NIC liability was deducted at source. If you expect this year's liability to be lower than last year's, you can claim to reduce the payments. Reduce them too far and you pay interest on the shortfall. You may also face a penalty if the claim was made carelessly or fraudulently.

The 31 January payment does a double job. It settles last year's balance and CGT, and, unless an exemption applies for the new year, it is also the first payment on account for that year. Exam questions on this date usually test whether you add all the items that apply.

Key rules to remember

Each payment on account
50% × (prior year income tax + Class 4 NIC − tax deducted at source)
Based on the previous year's liability. Excludes capital gains tax and Class 1 NIC. Two equal payments.
Due dates of payments on account
First: 31 January in the tax year. Second: 31 July after the tax year.
For 2025-26: 31 January 2026 and 31 July 2026.
Balancing payment
Actual income tax + Class 4 NIC for the year − payments on account − tax deducted at source
Due 31 January after the tax year. Add any CGT due for the year on the same date.
When no payments on account are required
Prior year income tax and Class 4 NIC liability − tax deducted at source < £1,000, or tax deducted at source ≥ 80% of prior year income tax and Class 4 NIC liability
Test each condition. Meeting either one removes the need for payments on account. Both tests use the previous year's income tax and Class 4 NIC liability.
Total due on 31 January after the year
Balancing payment + CGT + first payment on account for the next year (if required)
The next year's first payment on account is 50% of the year just ended (net of tax deducted at source). It is due only if neither exemption test applies for that next year.
Interest rates given in the exam
Underpaid tax 8·50%; overpaid tax 3·50%
These are the assumed rates in the ACCA tax rates and allowances. Interest on underpaid tax runs from the due date.

How to solve Payments on Account and Balancing Payments questions

Use this method for any question on payments on account or the balancing payment.

  1. 1Identify the tax year you are asked about and write down the three dates: 31 January in the year, 31 July after, and 31 January after the year end.
  2. 2Find the previous year's income tax and Class 4 NIC liability. Ignore CGT and Class 1 NIC. Deduct tax deducted at source, such as PAYE.
  3. 3Test whether payments on account are needed. If the net figure is below £1,000, or at least 80% of the previous year's income tax and Class 4 NIC liability was deducted at source, there are none.
  4. 4If they are needed, halve the net figure. That gives each payment on account.
  5. 5Compute the actual liability for the year in question: income tax plus Class 4 NIC, less tax deducted at source.
  6. 6Subtract the payments on account made to get the balancing payment. If it is negative, it is a repayment.
  7. 7On 31 January after the year, add CGT. Also add the first payment on account for the next year, which is 50% of the year just ended (net of tax deducted at source), if the exemption tests do not apply to that year.
  8. 8If a reduction claim is mentioned, compare the reduced payment with the correct figure. Any shortfall carries interest from the due date.

Quickest way: Three-line date and amount table

When to use it: Use it in Section B or C questions where you must state what is paid on each date.

  1. Draw three rows: 31 Jan in year, 31 July after, 31 Jan after.
  2. Put 50% of last year's net liability in rows one and two. Put zero if either exemption test applies.
  3. In row three, write balancing payment + CGT + 50% of this year's net liability (if the exemption tests do not apply to next year), and total each row.

Common mistakes in Payments on Account and Balancing Payments

  • Including capital gains tax in the payments on account.

    Students treat all tax on the return as one liability.

    Fix: Payments on account cover only income tax and Class 4 NIC. CGT is paid in full on 31 January after the year end.

  • Basing payments on account on the current year's liability.

    The wording 'tax for the year' is misread.

    Fix: They are always based on the previous year's liability. The current year only affects the balancing payment and the next year's payments.

  • Forgetting to deduct tax deducted at source before halving.

    Students halve the total liability from the computation.

    Fix: Deduct PAYE and similar tax first. Only the amount still to be paid under self-assessment is halved.

  • Leaving the next year's first payment on account out of the 31 January total.

    Students think of 31 January only as settling last year's tax.

    Fix: On 31 January after the year end, add the balancing payment, CGT and 50% of the year just ended for the next year.

  • Applying payments on account where an exemption applies.

    Students skip the £1,000 and 80% tests.

    Fix: Always test both. If either is met, no payments on account are due and the whole liability is paid on 31 January.

  • Treating a reduction claim as always safe.

    Students assume HMRC will accept any lower figure.

    Fix: If the reduction is too large, interest runs on the shortfall from the original due date, and a penalty can apply if the claim was careless or fraudulent.

Worked examples

Example 1

Priya is self-employed. Her 2024-25 income tax and Class 4 NIC liability was £16,000, with no tax deducted at source. For 2025-26 her income tax and Class 4 NIC liability is £20,000 and her CGT is £3,000. State what she pays and when in respect of 2025-26, and what is due on 31 January 2027.

Show the solution
  1. Payments on account are needed. The 2024-25 net liability is £16,000, which is over £1,000, and nothing was deducted at source.
  2. Each payment on account for 2025-26 is 50% × £16,000 = £8,000.
  3. First payment: £8,000 on 31 January 2026. Second payment: £8,000 on 31 July 2026. Total paid on account: £16,000.
  4. Balancing payment for 2025-26 = £20,000 − £16,000 = £4,000, due 31 January 2027.
  5. CGT of £3,000 is also due on 31 January 2027.
  6. Payments on account are also required for 2026-27: the 2025-26 liability of £20,000 is over £1,000 and nothing was deducted at source. First payment on account for 2026-27 = 50% × £20,000 = £10,000, also due 31 January 2027.
  7. Total due 31 January 2027 = £4,000 + £3,000 + £10,000 = £17,000.

Answer: Priya pays £8,000 on 31 January 2026 and £8,000 on 31 July 2026. On 31 January 2027 she pays £17,000, made up of a £4,000 balancing payment, £3,000 CGT and a £10,000 first payment on account for 2026-27 (required because no exemption applies).

Example 2

Tom's 2024-25 income tax and Class 4 NIC was £12,000, with no tax deducted at source. In January 2026 he expects his 2025-26 liability to be only £7,000 and claims to reduce his payments on account to £3,500 each. His actual 2025-26 liability is £7,600. Compute the balancing payment and the shortfall in the payments on account.

Show the solution
  1. Without a claim, each payment on account would be 50% × £12,000 = £6,000.
  2. With the claim, he pays £3,500 on 31 January 2026 and £3,500 on 31 July 2026, a total of £7,000.
  3. Actual liability is £7,600. Balancing payment = £7,600 − £7,000 = £600, due 31 January 2027.
  4. Each payment on account should have been 50% × £7,600 = £3,800. The shortfall is £300 on each payment date, £600 in total.
  5. Interest at the underpaid tax rate of 8·50% runs on £300 from 31 January 2026 and on £300 from 31 July 2026 until the tax is paid. The question asks only for the balancing payment and the shortfall, so no interest figure is calculated.
  6. A penalty is possible only if the claim was made carelessly or fraudulently. Here Tom's estimate was reasonable, so a penalty is unlikely.

Answer: The balancing payment is £600 due 31 January 2027. The shortfall is £300 on each payment date, and interest at 8·50% is charged on it from each date (no figure is requested). The first payment on account for 2026-27 is 50% × £7,600 = £3,800, also due on 31 January 2027, as no exemption applies.

Exam tips

  • Write the due dates beside every figure. Marks are often given for the correct date as well as the amount.
  • Always state the exemption tests: under £1,000 net, or at least 80% deducted at source. Show the working even if neither applies.
  • Keep CGT out of the payments on account base, and add it only to the 31 January balancing date.
  • In objective tests, check which year the question asks about before halving a figure. Look for a trap where the current year's liability is given.
  • In a reduction claim question, compare the claimed payment with the correct 50% figure. The difference is the shortfall that attracts interest.

Practice questions from The systems for self-assessment and the making of returns

Payments on Account and Balancing Payments in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Payments on Account and Balancing Payments: frequently asked questions

How do you calculate payments on account in TX-UK?

Take last year's income tax and Class 4 NIC liability, deduct tax deducted at source, and halve the result. Each half is one payment on account. CGT is not included.

What are the payment dates for self-assessment?

The first payment on account is due 31 January in the tax year. The second is due 31 July after the tax year. The balancing payment and any CGT are due the following 31 January.

When can payments on account be reduced?

You can claim a reduction if you expect the current year's liability to be lower than the previous year's. Reduce them by too much and interest runs on the shortfall. A penalty can apply if the claim was careless or fraudulent.

When are no payments on account needed?

None are required if last year's liability, net of tax deducted at source, was below £1,000. None are required either if at least 80% of last year's income tax and Class 4 NIC was deducted at source.