By Eternity Accountants Editorial Team · Reviewed by Shamayun Chowdhury, Senior Accountant · Published: 8 November 2026 · Last reviewed: November 2026 · Applies to the 2026/27 tax year
If you can’t afford payment on account amounts, first check whether you can lower them: HMRC lets you reduce them online or on form SA303 when you expect a smaller bill. If you still cannot pay, set up a payment plan quickly. Missed payments on account attract interest, currently 7.75% and rising to 8% from 24 November 2026.
The 31 January bill often lands harder than people expect. On top of last year’s balancing payment, HMRC wants the first instalment towards this year’s tax, and the total can easily be one and a half times what you paid last time. If you can’t afford payment on account demands this winter, you have more options than you might think.
This guide explains why the January total jumps, how to reduce payments on account safely, how payment plans work, and what missing a payment really costs. Every figure is checked against GOV.UK for the 2026/27 tax year.
- Each payment on account is half of last year’s Self Assessment bill, due on 31 January and 31 July.
- You can reduce them online or with form SA303 if this year’s profits are lower, but only to a realistic figure.
- If you still can’t pay, HMRC offers payment plans, and you can usually set one up online for debts up to £30,000.
- Late payments on account carry interest but no late payment penalty on their own.
- Interest rises to 8% a year from 24 November 2026, so acting before 31 January 2027 saves money.
- What to do if you can’t afford payment on account
- What payments on account are
- Why January feels so expensive
- How to reduce payments on account
- Setting up a payment plan
- What happens if you miss a payment
- Common mistakes and accountant’s view
- What to do before 31 January 2027
- Frequently asked questions
- Final verdict
What to Do If You Can’t Afford Payment on Account
Work through the options from cheapest to dearest. Cutting the amount costs nothing when your estimate is honest, and a payment plan then spreads whatever remains. Leaving the bill unpaid is the costliest route, since HMRC adds interest for every day it stays outstanding.
| Your situation | Best first step | Cost |
|---|---|---|
| This year’s profits are lower than last year’s | Reduce payments on account online or on SA303 | Free, unless you reduce too far |
| Profits are similar, but cash is tight | Set up a Self Assessment payment plan | Interest on the unpaid balance |
| You owe more than £30,000 or need longer | Call the Self Assessment Payment Helpline | Interest on the unpaid balance |
| The next bill is still months away | Start a Budget Payment Plan now | None |
| You stopped trading or income fell sharply | Reduce, possibly to nil, and get advice | Free if the estimate is right |
What Are Payments on Account, and Are They Compulsory?
Payments on account are advance instalments towards your next Self Assessment bill. According to GOV.UK’s guide to payments on account, each one is half of your previous Self Assessment bill, including Class 4 National Insurance. The Self Assessment payment on account deadline is midnight on 31 January for the first and 31 July for the second.
Is payment on account compulsory for Self Assessment?
HMRC will ask for them unless you fall into one of two exceptions. You do not need to make them if last year’s Self Assessment bill was under £1,000, or if more than 80% of your tax was already collected another way, such as through PAYE. Capital Gains Tax and student loan repayments are never included.
Why People Can’t Afford Payment on Account in January
Two different bills collide at the end of January. One settles any tax still owed for the year you have just filed; the other is the opening instalment for the year you are now in. When profits rise, both pieces swell at the same time, which is why the total can look out of all proportion to last year.
Sophie, a freelance graphic designer, owed £2,000 for 2024/25, so her 2025/26 payments on account were £1,000 each. A busy year pushed her 2025/26 bill to £6,000. On 31 January 2027 she owes a £4,000 balancing payment plus a £3,000 first payment on account for 2026/27: £7,000 in one go.
Sophie then lost a major client in summer 2026 and expects her 2026/27 bill to be nearer £4,000. Reducing each payment on account to £2,000 cuts her January total to £6,000 and her July payment to £2,000. That lowers the immediate pressure by £1,000 in each instalment without breaking any rule.
January total = the full bill for the year you have just filed − payments on account already made for it + half of that same bill. Run this sum in the autumn, and you will know months ahead whether you can’t afford payment on account dates that are coming up.
When a reduction is justified
A reduction makes sense when this year’s income genuinely looks lower than last year’s. Common reasons include losing a client, taking time off, higher allowable costs, bigger pension contributions or stopping trading altogether. A one-off item last year, such as a large bonus taxed through Self Assessment, is another good reason. Feeling short of cash is not a reason on its own.
How to Reduce Payments on Account Online or With Form SA303
If you can’t afford payment on account instalments because your income has fallen, reducing them is the first step. Follow the order below:
- Work out a realistic estimate of this year’s profit, using up-to-date bookkeeping records.
- Sign in to your HMRC online account, view your latest return and choose “Reduce payments on account”.
- Enter the amount you now expect to owe and give a reason, such as lower profits or higher allowable expenses.
- If you file on paper, send form SA303 to HMRC instead, giving the same details.
- Check your updated statement and pay the new amount by the deadline.
The risk of reducing too far
Treat any reduction as a promise you can back up with numbers. If the final bill is higher, HMRC charges interest on the shortfall from the original due dates. Under HMRC’s Enquiry Manual EM4660, a negligent or fraudulent claim can also lead to a penalty of up to the amount you under-paid.
Can’t Afford Payment on Account Even After Reducing? Set Up a Payment Plan
When you still can’t afford payment on account amounts after reducing them, a Self Assessment payment plan lets you clear the debt in monthly instalments. HMRC says you can usually set one up online if you owe £30,000 or less, have filed your tax returns and have no other payment plans or tax debts. Our guide to the HMRC Time to Pay arrangement explains the process step by step.
Bigger debts, or plans that need more time than the online tool offers, go through the Self Assessment Payment Helpline on 0300 200 3822. Expect questions about your income, your monthly outgoings and any savings you could use, as set out on HMRC’s difficulties paying HMRC page.
HMRC will never text or email asking for bank details to set up a payment plan. Always sign in through GOV.UK or the HMRC app yourself.
Budget Payment Plan for the next bill
With the next instalment still some months off, a Budget Payment Plan lets you pay weekly or monthly by Direct Debit towards it. You choose the amount and can pause for up to six months. You must be up to date with earlier bills to use it. Our HMRC payment plan guide compares it with Time to Pay.
What Happens If You Miss a Payment on Account?
If you can’t afford payment on account deadlines and miss one, HMRC charges interest, not an immediate penalty. HMRC’s Self Assessment Manual SAM61250 confirms late payment penalties are not charged on payments on account themselves. However, anything still unpaid when the balancing payment falls due becomes part of that balance and can then attract a penalty.
| Item | Rate or rule | Source |
|---|---|---|
| Late payment interest | 7.75% now, 8% from 24 November 2026 | HMRC interest rates page |
| Example: £3,000 paid 90 days late at 8% | About £59 in interest | Illustrative calculation |
| Penalty on a payment on account | None on its own | SAM61250 |
| Penalty on an unpaid balancing payment (outside MTD) | 5% at 30 days, then at 6 and 12 months | GOV.UK and ICAS guidance |
The current rates are published on GOV.UK’s HMRC interest rates page. Late payment interest is the Bank of England base rate plus 4%, so it changes whenever the base rate moves.
Making Tax Digital for Income Tax
If you joined MTD for Income Tax, payment dates have not changed and payments on account still apply. Under the MTD late payment penalty rules, penalties likewise do not apply to payments on account. Check both your old Self Assessment account and your MTD account, because some balances moved between them in 2026.
What Mistakes Make Payments on Account Harder?
Clients who tell us they can’t afford payment on account bills have usually filed their return late in January, with no time to plan. An autumn filing puts the figure in front of you while there is still time to reduce payments on account properly and put money aside. The reductions that go wrong are almost always rushed claims on 30 January with no workings behind them.
| Common mistake | Why it happens | What it leads to | How to avoid it |
|---|---|---|---|
| Reducing to nil to ease cash flow | Hoping profits will fall | Interest on the shortfall and a possible penalty | Base the claim on real figures |
| Ignoring the bill | Panic or avoidance | Daily interest and, later, penalties on the balance | Contact HMRC before the deadline |
| Paying only the balancing payment | Not realising both are due | Interest on the missed instalment | Check the full statement total |
| Setting up a plan with debts outstanding elsewhere | Unaware of the conditions | The online service refuses the plan | Call the helpline instead |
What Should You Do Before 31 January 2027?
- File your 2025/26 return as early as possible to see the full January figure.
- Compare it with your 2026/27 profits so far and decide whether a reduction is justified.
- Reduce online or with SA303, following GOV.UK’s reduction steps, and keep a note of your workings.
- Pay what you can by 31 January 2027, even if it is not everything.
- Set up a payment plan for the rest straight after the deadline.
- Start a Budget Payment Plan for the 31 July 2027 instalment.
Frequently Asked Questions
Do I have to make payments on account?
Yes, unless last year’s Self Assessment bill was under £1,000 or more than 80% of your tax was collected at source, for example through PAYE. If either applies, HMRC does not ask for payments on account.
Can I reduce my payment on account to zero?
Yes, if you genuinely expect to owe no Self Assessment tax this year, for example because you stopped trading. If you reduce to nil and later owe tax, HMRC charges interest on the shortfall.
What is form SA303?
SA303 is HMRC’s paper claim to lower your payments on account. The online route in your HMRC account does exactly the same job and updates your statement faster, so most people use that.
What happens if I can’t afford payment on account in July?
Interest runs from 31 July, but there is no late payment penalty on the payment on account itself. Pay what you can, consider reducing the amount, and contact HMRC about a payment plan.
Can I pay my payments on account monthly?
Yes. A Budget Payment Plan lets you pay weekly or monthly towards your next bill by Direct Debit, as long as you are up to date with earlier payments.
Does HMRC charge interest on a payment plan?
Yes. HMRC adds interest at its late payment rate to whatever is still owed until the debt is cleared. Keeping to an agreed plan does, however, protect you from further late payment penalties.
Final Verdict: Can’t Afford Payment on Account?
If you can’t afford payment on account bills, act early. Reduce them online or on SA303 when your profits have genuinely fallen, then use a payment plan for whatever remains. Interest is the main cost, not penalties, but it rises to 8% from 24 November 2026. File early, keep records of your estimate and talk to HMRC before 31 January 2027.
- Sign in through our Self Assessment login guide and check your statement.
- Let our Self Assessment tax return service file early and work out a safe reduction.
- See our fixed-fee pricing, call 0116 4030595 or email info@eternityaccountants.co.uk.
✓ Reductions based on real figures
✓ Help talking to HMRC
Why trust this guide
- Written by the Eternity Accountants Editorial Team and reviewed by a chartered management accountant (ACMA, MAAT) with more than 15 years’ UK practice experience.
- Checked against GOV.UK payments on account guidance, HMRC’s Self Assessment and Enquiry manuals and the November 2026 interest rate change.
- Covers both the existing penalty rules and Making Tax Digital for Income Tax.
- Last reviewed: November 2026.
Sources (accessed 8 November 2026)
- GOV.UK — Understand your Self Assessment tax bill: payments on account
- HMRC Enquiry Manual — EM4660 Penalties: claims to reduce payments on account
- HMRC Self Assessment Manual — SAM61250 Late payment penalties
- GOV.UK — HMRC interest rates for late and early payments
- GOV.UK — If you cannot pay your tax bill on time
- GOV.UK — Budget Payment Plan
- GOV.UK — Penalties for Making Tax Digital for Income Tax
- HMRC press release — payment plans for debts up to £30,000
- ICAS — Self Assessment penalties for 2025/26 and 2026/27
- ATT — Making Tax Digital for Income Tax: payments on account update (July 2026)
