Planning for your January and July tax payments

In short: STL income arrives disproportionately in June to September; income-tax payments under self-assessment fall in January and July. Modelling the specific payment months (balancing payment + first payment on account in January, second payment on account in July) against your own cash-collection pattern is a much better tool than a headline percentage-of-gross reserve. This piece runs through the calculation, the exceptions to payments on account, and the reduction claim rules.

Every January, our inbox picks up the same conversation: the tax due is bigger than expected and the cash is tighter than expected. The tax rate is not the issue; the timing is. This piece is the calendar and the calculation.

The self-assessment payments cycle

The 31 January payment for a self-assessment individual has two components:

1. The balancing payment for the previous tax year — the total liability for that year, less the two payments on account (POAs) already paid during the payment cycle for that year.
2. The first payment on account for the current tax year — 50% of the previous year's liability, unless the exceptions apply.

The 31 July instalment is the second payment on account for the tax year that ended on the preceding 5 April — the second 50% of the previous year's liability, again unless the exceptions apply. For example, 31 July 2026 relates to 2025/26.

The timing of the two POAs relative to the tax year they relate to is a specific point that catches out operators: for the 2025/26 tax year (6 April 2025 – 5 April 2026), the first POA fell on 31 January 2026 (during the tax year) and the second on 31 July 2026 (after the tax year ended); the balancing payment then follows on 31 January 2027. So one POA is paid within the tax year and one after it ends, with the balancing payment ten months after the year end.

Exceptions to payments on account. POAs do not apply where either the previous year's total self-assessment liability was less than £1,000, or more than 80% of that liability was collected at source (typically through PAYE). Where either applies, no POAs are required and the whole liability for the year falls on the 31 January balancing payment date.

What is excluded from POAs. Payments on account are calculated on income tax and Class 4 NIC only (relevant to self-employment income, not property income). Capital Gains Tax is excluded from the POA calculation but is not simply held over to the 31 January balancing payment for the site's core audience. A UK-resident individual disposing of UK residential property (which a typical holiday let is) generally has to file a CGT return and pay the tax within 60 days of completion where CGT is due, using HMRC's Report and pay Capital Gains Tax on UK property service. That 60-day payment is a separate cash event — it does not wait for the January balancing payment. Any residual CGT balance (from underpayment on the 60-day return, or from CGT on non-property assets) is picked up in the January balancing payment. Student Loan repayments included on the self-assessment are similarly excluded from POAs and fall in the balancing payment.

Property income and NIC. Property income is not subject to Class 4 NIC. Class 2 NIC changed from 6 April 2024: eligible self-employed people with profits above the relevant threshold are treated as having paid Class 2 without an actual payment being required, while voluntary payments concern other eligible cases (for example those below the threshold who want to protect their contribution record). NIC is not a January line for the property-income strand. Where an operator has self-employment income alongside the STL, Class 4 applies to the self-employment strand — property income is not self-employment for NIC purposes.

Worked example — a specific set of numbers

Assumptions: individual higher-rate taxpayer, 2024/25 property tax liability was £11,000 (so the two 2025/26 payments on account totalled £11,000, £5,500 each in January 2026 and July 2026); 2025/26 property tax liability comes out at £12,000.

At 31 January 2027:

• Balancing payment for 2025/26: £12,000 – £11,000 (already paid via the two 2025/26 POAs) = £1,000.
• First payment on account for 2026/27: 50% × £12,000 = £6,000.
• January total: £7,000.

At 31 July 2027:

• Second payment on account for 2026/27: 50% × £12,000 = £6,000.

The bit that catches operators out is not usually the balancing payment — it is the size of the payments on account, which step up when the underlying liability steps up. A one-year increase in liability lands in the following January as (increase) + (50% × new liability) rather than just the increase itself.

Reducing payments on account

Where the operator's 2026/27 liability will genuinely be lower than 2025/26 — a materially quieter trading year, a one-off adjustment in 2025/26 that will not repeat, a change in ownership — a claim to reduce payments on account can be filed with HMRC (form SA303 or via the online account). Where the reduction is justified, cash is released. Where the reduction is too aggressive, HMRC charges interest on the shortfall from the original due date.

Note: the reduction claim is only available where the current-year liability will actually be lower. For a specific operator that could happen for any number of reasons — a sale reducing rental income, a change in ownership, higher deductible costs, a change in interest rate environment. It is not a default lever; it needs a genuine forecast against the specific operator's numbers.

The 2027-28 rate rise — two years of cash impact

The Autumn Budget 2025 confirmed that property income tax rates rise by 2 percentage points from 6 April 2027 — to 22% / 42% / 47%. Finance-cost credits move to 22%.

The cash impact lands in two waves, not one:

1. The 2027/28 tax year is the first year at the new rates. The POAs for 2027/28 fall on 31 January 2028 and 31 July 2028 and are still calculated on 2026/27 liability (the previous year, at the old rates). They will be too low to cover the higher 2027/28 liability in full.
2. The 31 January 2029 payment picks up the balancing payment for 2027/28 (absorbing the rate-rise increase for that year, less the two POAs already paid) plus the first POA for 2028/29 (calculated on the higher 2027/28 liability). This is where the cash step-up lands.

Higher-rate borrowing operators should budget for this two-wave shape. Scottish taxpayers should note that non-savings, non-dividend rates are devolved and set separately at each Scottish Budget — the UK Budget change does not automatically flow through to Scottish taxpayers.

The discipline — a modelled reserve, not a headline percentage

A tax reserve account funded from booking receipts is the practical discipline. The right target is the modelled year's expected liability, not a headline percentage of gross bookings. Percentages proposed as universal (25%, 30%, "roughly a third") are unreliable across owners with different marginal rates, borrowing profiles, other income, allowance positions, ownership structures and expense levels. The forecast tax reserve is what you set aside from receipts; the amount HMRC currently requests through POAs is different again — it is calculated on last year's liability, not this year's. Where the two diverge, plan against the higher figure and consider a formal reduction claim if the divergence is genuine and material.

What operators should do now

1. Model the January 2027 payment specifically. Balancing payment (2025/26 liability less POAs already paid) plus first POA for 2026/27. Get this from your accountant by October at the latest.
2. Set aside cash against the modelled figure, not against a headline percentage.
3. File an SA303 reduction claim only where the current-year liability will genuinely be lower — and file it, don't just underpay.
4. Plan for the 2027-28 rate rise in your 2027 cash budget.

Book a free consultation to model the specific numbers for your position.

Sources: HMRC — Understand your Self Assessment bill: payments on account; HMRC — Reduce your payments on account (SA303); HMRC — Self-employed National Insurance rates; Autumn Budget 2025.