HMRC Payment on Account Explained: Why Your First UK Bill Can Be 150%

HMRC payment on account explained in one line: it is an advance instalment towards next year's Self Assessment bill, set at half of this year's bill and due twice a year, by 31 January and 31 July. In your first year the first instalment falls due on the same day as the whole of the bill for the year just ended, which is how a new filer ends up paying 150%.

Payments on account catch more first-time filers than any other part of Self Assessment, and Americans who have recently moved to the UK are often among them. A US brokerage account, a US rental or self-employed income can all create a UK bill that is not collected through PAYE. This guide sets out how the instalments are calculated, who is exempt, how to reduce them, what late payment costs, and how the UK dates sit alongside US estimated tax and the foreign tax credit.

What is an HMRC payment on account?

An HMRC payment on account is an advance payment towards your next Self Assessment tax bill. GOV.UK's guidance on payments on account describes them as "payments towards your next tax bill (including Class 4 National Insurance if you're self-employed)". There are two a year, each usually half of the tax you owed for the previous year, due by midnight on 31 January and 31 July.

The system exists because Self Assessment tax is otherwise paid long after the income is earned. Income from April 2025 would not be taxed until January 2027. Payments on account pull part of that forward, so that by the time you file, most of the bill has already been paid. Whatever is left is the "balancing payment".

How are payments on account calculated?

Each payment on account is half of the previous year's Self Assessment liability, after leaving out certain items. HMRC's Self Assessment Manual at SAM1010 says the figure is half the previous year's tax and National Insurance liability after the deduction of Capital Gains Tax, tax deducted at source and student loan repayments.

Two consequences follow. A one-off capital gain, such as selling US shares, does not inflate the following year's instalments, because Capital Gains Tax is settled only in the balancing payment. And the instalments are based on last year, not on an estimate of this year. If your income rises, you pay the difference in the balancing payment. If it falls, you have overpaid unless you ask HMRC to reduce them.

The annual cycle

Date	What is due	Tax year it relates to
31 January 2027	Balancing payment	2025 to 2026
31 January 2027	First payment on account	2026 to 2027
31 July 2027	Second payment on account	2026 to 2027
31 January 2028	Balancing payment for 2026 to 2027, plus first payment on account for 2027 to 2028	Both

GOV.UK gives its own example. Your bill for the year is £3,000 and you made two payments on account of £900 during the year. By 31 January you owe the £1,200 balance plus a first payment on account of £1,500 for the next year, which is £2,700 in total.

Why can your first UK tax bill be 150%?

Your first Self Assessment bill can be 150% of what you expected because two things fall due on the same day. In your first year in the system you have made no payments on account, so the balancing payment is the entire bill for the year. On the same 31 January, HMRC asks for the first payment on account for the following year, which is half of that bill again.

Illustrative example: an American moves to London and files a first Self Assessment return for 2025 to 2026, showing £8,000 of Income Tax on US investment and rental income that was not taxed through PAYE. No payments on account were made. On 31 January 2027 she pays the £8,000 balancing payment plus a £4,000 first payment on account for 2026 to 2027, a total of £12,000. A second £4,000 is due on 31 July 2027. If her 2026 to 2027 bill is also £8,000, the January 2028 payment drops to £4,000, which is the first instalment for 2027 to 2028. This is a simplified illustration, not advice.

The 150% is a cash-flow effect, not extra tax. The £4,000 paid in January and the £4,000 paid in July are credited in full against the following year's bill. The difficulty is that it arrives in one month, often just after an American has also been making US estimated payments on the same income.

Who is exempt from payments on account?

You do not have to make payments on account if either of two conditions is met. GOV.UK lists them:

• Your last Self Assessment tax bill was less than £1,000.
• You have already paid more than 80% of the previous year's tax outside Self Assessment, for example through your tax code or because your bank has already deducted tax from interest.

The 80% test is why most employees never meet payments on account. Someone on a UK salary with a few thousand pounds of US dividends pays the great majority of their tax through PAYE, so the Self Assessment balance does not trigger instalments even if it is over £1,000.

Paying through your tax code helps too. GOV.UK says HMRC can collect a Self Assessment bill through your PAYE tax code if you owe less than £3,000, you already pay tax through PAYE, and you filed your online return by 30 December or your paper return by 31 October. Filing in early December instead of late January can therefore change how the bill is collected.

Who usually has to pay them

Your situation	Payments on account likely?	Why
UK employee, small untaxed US interest or dividends	No	More than 80% of tax is paid through PAYE, or the bill is under £1,000
Self-employed or freelance in the UK	Yes	Little or no tax deducted at source
Living on US investment, pension or rental income	Yes	No UK tax is deducted before it reaches you
Employee with a large one-off capital gain only	No	Capital Gains Tax is left out of the calculation
Employee paid by a US employer with no UK payroll	Often	The UK tax on the salary is collected through Self Assessment

How to reduce payments on account

If you know this year's bill will be lower than last year's, you can ask HMRC to reduce the instalments. GOV.UK gives two routes:

1. Ask for the reduction through your online Self Assessment account.
2. Or send form SA303 to HMRC by post.

Typical reasons include a one-off receipt last year that will not recur, a move from self-employment into PAYE employment, a fall in profits, or a first-year bill that covered an unusual period. New arrivals should also check whether a claim under the four-year foreign income and gains regime changes next year's expected bill.

The risk is over-reducing. GOV.UK says that if your actual bill is higher than your reduced payments, HMRC will charge interest on the difference. Reduce to a figure you can support with a calculation, and keep the workings.

What happens if you pay late?

HMRC charges interest on tax paid after its due date, including payments on account. HMRC's interest rates page says late payment interest is set at Bank of England base rate plus 4% from 6 April 2025, and it showed a rate of 7.75% when checked on 1 October 2026. Check the page for the current figure, because it moves with base rate.

Late payment penalties work differently. GOV.UK's Self Assessment penalties page sets them at 5% of the tax unpaid at 30 days, 6 months and 12 months, but HMRC's Self Assessment Manual at SAM61250 says they are not charged on payments on account as such. Any part of a payment on account still outstanding at the 31 January balancing payment date is, however, treated as part of the balancing payment, and penalties can then apply to it.

If the January total is more than you can pay in one go, there are two official routes. A Budget Payment Plan lets you pay weekly or monthly by Direct Debit towards your next bill, provided you are up to date with earlier payments. And if you cannot pay a bill that is due, GOV.UK's guidance on difficulties paying HMRC explains how to ask for a payment plan to spread it in instalments.

The US angle: estimated tax and the foreign tax credit

Americans in the UK deal with two advance-payment systems. The IRS says individuals generally have to make estimated tax payments if they expect to owe $1,000 or more when the return is filed, using Form 1040-ES across four payment periods. HMRC's payments on account are two instalments based on last year. The calendars do not line up, and the same income can drive both.

In most cases the UK tax ends up reducing the US tax through the foreign tax credit, so the aim is to avoid paying both in full up front. Three points matter:

• Paid or accrued. IRS Topic 856 says a cash-basis taxpayer claims the foreign tax credit in the year the foreign tax is paid, unless they elect the accrual basis on Form 1116, and that the election then applies to all later returns. Because UK payments fall in January and July, the choice decides which US year each UK payment counts in.
• Different tax years. The UK year runs from 6 April to 5 April and the US year is the calendar year. A 31 January payment on account relates to a UK year that spans two US returns.
• Estimated US payments may be unnecessary. Where UK tax on the same income is higher than US tax, the credit can remove the US liability, and with it the need for US estimated payments. That has to be projected, not assumed. Our guide to US/UK double taxation relief explains which country gives the credit for each type of income.

For US-source income reported on the Foreign pages, the starting point is the UK computation. Our SA106 foreign income guide shows where each item goes, and the bill it produces is what sets the payments on account.

What people get wrong about payments on account

• Treating the instalments as a penalty. They are advance payments and are credited in full against the next bill.
• Budgeting for 100% in the first January. A first-year filer who is not exempt should budget for 150% in January and a further 50% in July.
• Forgetting 31 July. There is no return to file in July, so the second instalment is easy to miss, and interest runs from the due date.
• Not reducing after a one-off year. If last year included income that will not repeat, the instalments can be reduced before they are paid.
• Reducing to nil without a calculation. Interest is charged on any shortfall.
• Assuming a big capital gain raises next year's instalments. Capital Gains Tax is excluded.
• Filing in late January. Filing online by 30 December may allow a bill under £3,000 to be collected through your tax code instead.

Planning for your first payment on account

The practical steps are simple: work out the first-year bill early, test the £1,000 and 80% exemptions, set aside 150% for January if they do not apply, and review whether a reduction is justified before each instalment. If you are new to Self Assessment, start with registering by 5 October so the return can be filed well before the deadline.

US/UK Cross Border Tax, US CPAs and UK tax advisers working as one team in London, Manchester, New York and San Francisco, prepares the UK return and the Form 1040 together, so the payments to HMRC and the IRS are planned as one cash-flow picture. Our UK Self Assessment service includes HMRC payment on account explained in plain figures for your own bill, and our work for Americans in the UK covers the US side. Contact us before 31 January to plan the first payment.