If you pay yourself in dividends, your first big Self Assessment bill often comes as a shock. It is not just last year's tax: HMRC also asks for part of next year's tax in advance. These advance payments are called payments on account, and once you know how they work, they are easy to plan for.
What payments on account are
Payments on account are two advance payments towards your next Self Assessment bill, due on 31 January and 31 July. Each one is usually half of the tax you owed for the previous year. When the year's final figure is known, you pay any difference as a balancing payment the following January, or get money back if you paid too much.
They are not extra tax. They are the same tax, collected earlier.
When they apply to you
You have to make payments on account if both of these are true:
- your last Self Assessment bill was more than £1,000, and
- less than 80% of your tax for the year was collected at source, for example through PAYE on your salary.
Most directors meet both. A salary of £12,570 has no tax taken through payroll, and dividends are never taxed at source, so almost all of a typical director's tax is paid through Self Assessment.
Payments on account cover Income Tax, and Class 4 National Insurance if you are also self-employed. They do not include Capital Gains Tax or student loan repayments. Student loan repayments on a salary are a separate deduction through payroll (your tax code does not change); any repayment worked out in your tax return is paid in full with the balancing payment, as is Capital Gains Tax.
A worked example
Take a director who pays themselves the usual £12,570 salary and £37,700 of dividends each year, and whose first Self Assessment bill is for 2025/26. The salary is covered by the Personal Allowance, and the first £500 of dividends is tax-free under the dividend allowance.
| Tax year | Working | Tax for the year |
|---|---|---|
| 2025/26 | Taxable dividends: £37,700 − £500 = £37,200. Tax: £37,200 × 8.75% | £3,255.00 |
| 2026/27 | Taxable dividends: £37,200, as above. Tax: £37,200 × 10.75% (the rate rose by 2 percentage points in April 2026) | £3,999.00 |
Here is what HMRC asks for, and when:
| Due date | What it is for | Amount |
|---|---|---|
| 31 January 2027 | 2025/26 tax of £3,255.00, plus the first payment on account for 2026/27: £3,255.00 × 50% = £1,627.50. Total: £3,255.00 + £1,627.50 | £4,882.50 |
| 31 July 2027 | Second payment on account for 2026/27: £3,255.00 × 50% | £1,627.50 |
| 31 January 2028 | Balancing payment for 2026/27: £3,999.00 − (£1,627.50 + £1,627.50) = £744.00, plus the first payment on account for 2027/28: £3,999.00 × 50% = £1,999.50. Total: £744.00 + £1,999.50 | £2,743.50 |
| 31 July 2028 | Second payment on account for 2027/28: £3,999.00 × 50% | £1,999.50 |
The first January is the big one: £4,882.50 is one and a half times the year's tax (£3,255.00 × 1.5 = £4,882.50), and together with July that is £4,882.50 + £1,627.50 = £6,510.00 to pay in 2027. After that, the payments settle into a steady pattern, as long as your income stays roughly the same.
Reducing your payments on account
If you know this year's tax will be lower than last year's, for example because you are taking less in dividends, you can ask HMRC to reduce your payments on account, online or on form SA303. You give your estimate of this year's income, and HMRC works out the new payments from it.
Be realistic. If you reduce them too far and your final bill is higher, HMRC charges interest on the shortfall from the original due dates. Reducing them simply to ease cash flow, without a genuine reason to expect lower tax, usually costs more in the end.
Paying late
HMRC charges interest on any payment made after its due date, including payments on account. Late payment interest is set at the Bank of England base rate plus 4 percentage points. On top of that, a late balancing payment attracts penalties of 5% of the unpaid tax at 30 days, 6 months and 12 months late.
How to plan for it
- Put the tax aside when you take each dividend. Within the basic rate band that is 10.75%: on a £1,000 dividend, £1,000 × 10.75% = £107.50. Above it, 35.75%: £1,000 × 35.75% = £357.50. A separate savings account keeps it out of sight.
- Expect the first January to be one and a half times the year's tax, as in the example above, and plan for it in advance.
- Spread the cost if you prefer. HMRC lets you pay towards your bill in weekly or monthly instalments before the deadline, through your online account or the HMRC app.
- File early. Filing your return in the summer or autumn, rather than in January, tells you exactly what is due months before you have to pay it.
How we help
We prepare our clients' Self Assessment returns well before the deadline, tell them exactly what is due on each date, and plan dividends through the year so the tax is put aside as it arises. There are no surprises in January.
Common questions
Do company directors have to make payments on account?
Usually, yes. If your last Self Assessment bill was more than £1,000 and less than 80% of your tax was collected at source, payments on account apply. Dividends are never taxed at source, so most directors who take dividends meet both conditions.
When are payments on account due?
On 31 January and 31 July. Each is usually half of the previous year's Self Assessment bill. Any difference is paid as a balancing payment the following 31 January.
Why is my first Self Assessment bill so high?
In your first year with payments on account, the January bill includes the whole of last year's tax plus the first payment on account for this year, which is half as much again. A £3,255.00 bill becomes £3,255.00 × 1.5 = £4,882.50 due in January.
Can I reduce my payments on account?
Yes, if you expect this year's tax to be lower, you can apply online or on form SA303. If you reduce them too far and your final bill is higher, HMRC charges interest on the shortfall.
Do payments on account include student loan repayments?
No. They cover Income Tax, and Class 4 National Insurance if you are also self-employed. Student loan repayments on a salary are a separate deduction through payroll (your tax code does not change); any student loan repayment or Capital Gains Tax worked out in your tax return is paid in full with the balancing payment.
Sources: HMRC guidance on GOV.UK: Understand your Self Assessment tax bill: payments on account and Pay your Self Assessment tax bill. Dividend rates from the 2026/27 figures published by HMRC. Figures correct for 2026/27 and reviewed October 2026. General guidance, not personal advice.