.jpg&w=64&q=75){kind=small}
.jpg)
For landlords, one of the biggest surprises in Self-Assessment is discovering that the amount due in January can be considerably higher than the tax owed on rental profits for the previous year.
This is because HMRC may collect the outstanding tax for the previous year and the first payment on account (an advance payment towards the current year's tax bill) at the same time. In some cases, this means paying 150% of the previous year's relevant tax bill in January.
This guide explains how HMRC payments on account work, who must pay them, how much landlords may owe on 31 January and 31 July, and how to reduce payments when rental profits fall.
What Are HMRC Payments on Account?
Payments on account are advance payments towards your Self-Assessment tax liability for the current tax year.
Rather than collecting the full amount after the tax year ends, HMRC normally requires eligible taxpayers to make two instalments based on their previous year's relevant liability.
The rules are set out in section 59A of the Taxes Management Act 1970, together with the Income Tax (Payments on Account) Regulations 1996.
The payment cycle works as follows:
31 January: First payment on account for the current tax year.
31 July: Second payment on account for that tax year.
Following 31 January: Any outstanding balance is paid once the final liability has been calculated.
For the 2026 to 2027 tax year, which runs from 6 April 2026 to 5 April 2027:
First payment on account: 31 January 2027
Second payment on account: 31 July 2027
Final balancing payment, if required: 31 January 2028
These payments are advance instalments, not additional taxes. They are credited against the final liability for the relevant tax year.
Who Has to Make Payments on Account?
You will generally have to make payments on account if you submit a Self Assessment tax return and your previous year's relevant tax liability meets HMRC's requirements.
However, payments on account are not normally required if either:
Your previous year's relevant Self Assessment liability was less than £1,000.
More than 80% of the relevant tax owed was collected outside Self Assessment, such as through PAYE.
The £1,000 threshold is based on the relevant liability after deducting tax already collected at source. Certain amounts, including Capital Gains Tax and student loan repayments, are excluded from the calculation.
What Does This Mean for Landlords Who Also Have a Job?
If you earn income from both employment and rental property, you may not need to make payments on account. This is because HMRC considers how much of your total tax has already been deducted through PAYE.
If your total income tax liability is £10,000 and £8,500 has already been deducted from your salary, 85% of your tax has been collected. As this exceeds the 80% threshold, you would not need to make payments on account, even though you still owe £1,500 through Self Assessment.
However, if your rental profits increase, more tax may become payable through Self Assessment, meaning you could become liable to make payments on account.
If £8,500 of your £10,000 total tax bill is collected through PAYE, you meet the 80% rule. But if your rental profits increase and your total tax bill rises to £13,000 while PAYE deductions remain at £8,500, only 65.4% of your tax has been collected. You would therefore normally need to make payments on account.
Rental income from an ordinary property letting business is not normally subject to Class 4 National Insurance. Therefore, most landlords' payments on account relate to income tax.
If you also earn self-employed trading income, any Class 4 National Insurance included in your relevant liability will normally be taken into account.
How Are HMRC Payments on Account Calculated?
HMRC normally calculates each payment on account as 50% of your previous year's relevant Self Assessment liability.
For example, suppose your 2025 to 2026 relevant tax bill is £6,000.
Your payments on account for 2026 to 2027 would be:
Payment | Amount | Due date |
|---|---|---|
First payment on account | £3,000 | 31 January 2027 |
Second payment on account | £3,000 | 31 July 2027 |
Total advance payments | £6,000 |
These payments are based on the previous year's liability rather than your actual rental profits for the current year.
If your profits increase, you may have more tax to pay when your final liability is calculated.
If your profits fall, you may be able to reduce your payments on account.
When Are Payments on Account Due?
Once you are in the payments on account system, the amount payable on 31 January will usually include:
Any balancing payment for the previous tax year.
The first payment on account for the current tax year.
The payment due on 31 July is normally the second payment on account.
Due date | What you pay |
|---|---|
31 January 2027 | Balancing payment for 2025 to 2026, plus the first payment on account for 2026 to 2027 |
31 July 2027 | Second payment on account for 2026 to 2027 |
31 January 2028 | Balancing payment for 2026 to 2027, plus the first payment on account for 2027 to 2028 |
31 July 2028 | Second payment on account for 2027 to 2028 |
The 31 January deadline is also the online Self Assessment filing deadline for the previous tax year.
Submitting your tax return early does not change the payment deadlines, but it helps you understand how much you need to pay before January.
Why Is Your First January Tax Bill So High?
Your first January Self Assessment payment can be particularly high because it may include a full year's tax together with the first payment on account for the following year.
For example, suppose your relevant Self Assessment tax liability for 2025 to 2026 is £6,000 and you did not make payments on account for that year.
On 31 January 2027, you would normally pay:
£6,000 for your 2025 to 2026 tax liability.
£3,000 as your first payment on account for 2026 to 2027.
This brings your total January payment to £9,000.
You would then normally pay another £3,000 on 31 July 2027.
The £9,000 January payment represents 150% of your previous year's relevant tax liability.
This is not an additional tax charge. The £3,000 payment on account is credited against your tax liability for 2026 to 2027.
What Is Not Included in Payments on Account?
Payments on account generally cover income tax and Class 4 National Insurance.
Certain other liabilities are excluded from the calculation.
Capital Gains Tax
Capital Gains Tax is not included when HMRC calculates your payments on account.
If you sell a UK residential property and Capital Gains Tax is due, you will normally need to report and pay it within 60 days of completion through HMRC's Capital Gains Tax on UK property service.
Where you are required to submit a Self Assessment return, the disposal must also be included in that return. Any Capital Gains Tax still payable through Self Assessment is dealt with separately from payments on account.
Student Loan Repayments
Student loan and postgraduate loan repayments calculated through Self Assessment are also excluded from payments on account.
Instead, these amounts are normally collected as part of the balancing payment.
Consequently, a landlord may have a larger balancing payment without a corresponding increase in payments on account.
How to Reduce HMRC Payments on Account
If you expect your relevant tax liability for the current year to be lower than the previous year, you can ask HMRC to reduce your payments on account.
This may be appropriate where:
Your rental profits have fallen.
You have sold a rental property.
A property has remained vacant for part of the year.
Your allowable expenses have increased.
Your overall income tax liability is expected to decrease.
There are two ways to request a reduction.
1. Online through your HMRC account
Sign in to your HMRC online account, view your latest Self Assessment return and select the option to reduce payments on account.
2. By submitting form SA303
You can complete HMRC form SA303 and send it to HMRC by post.
You will need to provide a reasonable estimate of your expected liability.
If you believe no payments on account will be due, you can request a reduction to zero.
However, you should not reduce your payments simply because you would prefer to pay less in advance.
What Happens if You Reduce Your Payments Too Much?
If you reduce your payments on account and your actual tax liability is higher than expected, HMRC will charge interest on the shortfall.
Interest is calculated from the original payment deadlines until the outstanding amount is paid.
A penalty may also apply if an incorrect reduction claim is made fraudulently or negligently under section 59A(6) of the Taxes Management Act 1970.
However, a reasonable estimate that later proves inaccurate does not automatically result in a penalty.
Landlords should therefore use their current rental income, allowable expenses and other relevant tax information when deciding whether to request a reduction.
How Changes in Rental Income Affect Payments on Account
Because payments on account are based on the previous year's liability, changes in your property business may not be reflected immediately.
Rent increases or new properties
If rental profits increase, your existing payments on account normally remain based on the previous year's liability.
The additional tax may become payable as a balancing payment. Your subsequent payments on account may also increase.
Selling a property
If you sell a rental property, your future rental profits may fall.
This could justify reducing your payments on account, provided your overall relevant tax liability is expected to decrease.
Any Capital Gains Tax arising from the sale is dealt with separately.
Rental losses
Losses from a UK property business are normally carried forward and used against future profits of the same property business.
Relief against other income is available only in limited circumstances.
A fall in rental profits or a loss may reduce your relevant tax liability and could justify reducing your payments on account.
Changes in property income tax rates
Changes in income tax rates can also affect your final liability, even when your rental profits remain unchanged.
The government has announced separate property income tax rates of 24%, 44% and 49% from 6 April 2027 for individuals in England, Wales and Northern Ireland. The position for Scotland and Wales is subject to the relevant devolved tax-setting arrangements.
Payments on account for 2027 to 2028 will normally be based on the previous year's relevant tax liability, they may not cover the full amount of tax due under the new higher rates.
This could result in a larger balancing payment on 31 January 2029.
What Happens if You Pay Your Payments on Account Late?
If you miss a payment on account deadline, HMRC will normally charge late payment interest on the unpaid amount.
However, late payment penalties do not apply to payments on account.
Late payment penalties can apply to outstanding balancing payments and certain other unpaid Self Assessment liabilities.
Late Payment Interest
Since 6 April 2025, HMRC's general late payment interest rate has been set at the Bank of England base rate plus 4%.
As at 12 November 2026, the late payment interest rate is 7.75%.
Following the Bank of England's interest rate increase in November 2026, HMRC has confirmed that its late payment interest rate for Self Assessment will rise to 8% from 24 November 2026.
Interest normally runs from the day after the payment deadline until the outstanding amount is paid.
Because rates can change, landlords should check HMRC's published interest rates when calculating overdue payments.
Late Payment Penalties
The late payment penalty rules depend on the tax year and the regime applying to the taxpayer.
Under the previous Self Assessment regime, penalties are generally charged at:
5% of the unpaid tax after 30 days.
A further 5% after six months.
A further 5% after twelve months.
A new penalty system applies to taxpayers entering Making Tax Digital for Income Tax from 2026 to 2027.
From April 2027, the new system also extends to individuals submitting personal Self Assessment returns who are not required to use MTD.
Under the new system, the rates are:
Penalty stage | 2026/27 | 2027/28 onwards |
|---|---|---|
Tax remains unpaid at day 15 | 3% | 4% |
Tax remains unpaid at day 30 | Further 3% | Further 4% |
Tax remains unpaid from day 31 | 10% annual rate, charged daily | 10% annual rate, charged daily |
The additional daily penalty can apply for up to two years.
In a taxpayer's first year under the new penalty regime, HMRC generally allows 30 days to pay in full or arrange a payment plan before a late payment penalty arises.
In subsequent years, this period reduces to 15 days.
These penalties do not replace late payment interest, which continues to apply to unpaid tax.
If you cannot afford to pay your Self Assessment tax bill on time, HMRC may allow you to spread the cost through a Time to Pay arrangement. You can check your eligibility online or contact HMRC directly. Interest will normally continue to apply to the unpaid tax, but an agreed payment plan may help you avoid certain late payment penalties.
Does Making Tax Digital Change Payments on Account?
No. Making Tax Digital (MTD) for Income Tax changes how landlords report their income and expenses, but it does not change when they pay tax.
Under MTD, eligible landlords must keep digital records and submit quarterly updates to HMRC using compatible software. However, these updates are for reporting purposes only and do not require quarterly tax payments.
Landlords must still make payments on account by 31 January and 31 July, where required, and pay any remaining tax through a balancing payment by the following 31 January.
Keeping digital records up to date can also help landlords estimate their tax liability and plan ahead for these payment deadlines.
Payments on Account: Worked Examples for Landlords
The following examples show how payments on account work in practice.
The calculations assume individual taxpayers in England, Wales or Northern Ireland with no other income, no mortgage interest relief adjustments and no Class 4 National Insurance liability.
Scottish income tax rates differ, but the basic payments on account system operates in the same way.
Example 1: A New Landlord's First-Year Double Hit
Sam begins renting out a portfolio of flats in May 2025.
For the 2025 to 2026 tax year, he has taxable rental profits of £42,570.
His income tax calculation is:
Calculation | Amount |
|---|---|
Taxable rental profit | £42,570 |
Personal Allowance | (£12,570) |
Income subject to tax | £30,000 |
Income tax at 20% | £6,000 |
Sam did not make payments on account for 2025 to 2026 because he had no relevant Self Assessment liability in the previous year.
In 2026 to 2027, his taxable rental profit increases to £48,570.
His income tax liability for that year is £7,200.
His payment schedule is:
Due date | Payment details | Amount |
|---|---|---|
31 January 2027 | £6,000 balancing payment plus £3,000 first payment on account | £9,000 |
31 July 2027 | Second payment on account | £3,000 |
31 January 2028 | £1,200 balancing payment plus £3,600 first payment on account for 2027/28 | £4,800 |
31 July 2028 | Second payment on account for 2027/28 | £3,600 |
Sam's January 2027 payment is £9,000, equivalent to 150% of his previous year's relevant tax liability.
Of this amount, £3,000 is an advance payment towards his 2026 to 2027 tax liability.
If Sam's qualifying income for 2025 to 2026 was over £30,000, he would normally also need to use Making Tax Digital for Income Tax from 6 April 2027, provided he meets the eligibility conditions.
This would not change his payments on account deadlines.
Example 2: Reducing Payments on Account After a Property Sale
Aisha owns two rental properties.
Her relevant Self Assessment tax liability for 2025 to 2026 is £8,000.
HMRC therefore calculates her payments on account for 2026 to 2027 as:
£4,000 due on 31 January 2027.
£4,000 due on 31 July 2027.
In September 2026, Aisha sells one of her properties.
Based on her updated rental income and expenses, she estimates that her relevant tax liability for 2026 to 2027 will fall to £5,000.
She asks HMRC to reduce each payment on account to £2,500.
If her estimate is correct |
|---|
Aisha pays £2,500 on 31 January 2027 and £2,500 on 31 July 2027. Her total advance payments equal her final relevant tax liability of £5,000, so no balancing payment is due for that liability. |
If her final tax liability is £6,000 |
|---|
Her payments on account should have been £3,000 each. Because she paid only £2,500 on each date, there is a shortfall of £500 per instalment. She would owe a £1,000 balancing payment on 31 January 2028, together with interest on the underpaid instalments. Interest would apply to the first £500 shortfall from 31 January 2027 and the second £500 shortfall from 31 July 2027 until the amounts are paid. For illustration, interest on £500 at an annual rate of 7.75% would be approximately £38.75 for a full year. |
The actual amount charged would depend on the applicable interest rates and how long the shortfall remained unpaid.
Any Capital Gains Tax arising from Aisha's property sale is separate from these payments on account calculations.
Conclusion
HMRC payments on account spread Self Assessment tax payments across two instalments, but they can still lead to unexpected bills, particularly in January when the previous year's outstanding tax and the first advance payment may be due together. Changes in rental profits, property sales and tax rates can also affect the final amount payable.
Making Tax Digital does not change the 31 January and 31 July payment deadlines. By keeping accurate rental income and expense records, landlords can estimate their tax liabilities, plan ahead and request a reduction in payments on account where appropriate.
