A landlord client's tax bill jumps and January costs three times the usual: payments on account, worked

A landlord client rings in December, surprised. Their rental income rose this year, and the bill due on 31 January is far bigger than the one before. Nothing is wrong. HMRC asks for part of next year's tax in advance, and in a year when income grows, that advance lands on top of a balance for the year just finished. An agent who can split the number into its two parts calms the call and helps the client set money aside.

What GOV.UK says

The page says payments on account are "payments towards your next tax bill", and that they are due "by midnight on 31 January and 31 July". Each payment is usually half of the tax owed the previous year. If you earn more than estimated, you may owe a balancing payment, worked out by taking the payments on account you have made from the total tax you owe, and due by midnight on 31 January the following year.

You do not need to make payments on account if either of these applies:

• the tax you owed last year was less than £1,000, or
• last year you paid more than 80% of the tax you owed outside of Self Assessment.

You can ask HMRC to reduce them if you expect a lower bill, online or on form SA303. If the bill turns out higher than you expected, you are charged interest on the difference.

The worked example

The GOV.UK page uses its own figures. The table below uses ours, picked so the arithmetic is easy to check.

Say the client's tax for 2025 to 2026 comes to £4,200. The year before, it was £3,000, so the two payments on account made during 2025 and 2026 were £1,500 each, £3,000 in total.

Check: in a flat year at £3,000 the January payment would be £1,500 (a balancing payment of nothing plus a £1,500 payment on account). With the rise, January is £3,300, which is 2.2 times as much (3,300 / 1,500). The extra £1,800 is £1,200 of balancing payment plus £600 of larger payment on account (2,100 - 1,500).

If the client's income then falls back, the 2026 to 2027 payments on account were set from the higher figure, so the client can ask HMRC to reduce them using the route on the GOV.UK page.

Testing the two exemptions

Using the same £4,200:

• Under £1,000? No. £4,200 is not less than £1,000, so payments on account are due. A client whose bill was £800 would not make them.
• More than 80% paid outside Self Assessment? 80% of £4,200 is £3,360 (4,200 x 0.8). A client with £3,500 collected elsewhere, for example through an employer, passes the test, since £3,500 is more than £3,360 (3,500 / 4,200 is about 83%). A client with £3,000 collected elsewhere does not (about 71%).

What counts as tax "paid outside of Self Assessment" is for HMRC to confirm; the page gives no list, so ask the client to check their tax return.

What to put in front of the client

• Tell them in autumn which two numbers make up January: the balance for the year just ended and the first payment on account.
• Suggest setting aside a monthly sum. For the example, £3,300 over the three months of November, December and January is £1,100 a month (3,300 / 3).
• Remind them that 31 July comes round again with another £2,100 in the example.
• Point them to the page on late return penalties, and to the property allowance if their expenses are small.

What we did not read

We did not read how HMRC calculates the first payment on account where the client had no previous return, how Class 4 National Insurance is treated for landlords, or what interest rate applies to late payments. We did not read the HMRC guidance on how a client can estimate a reduction. The client's accountant or HMRC should confirm their own numbers.

Where Overlyft fits

Overlyft can set up AI staff who join your lettings team and take the job of drafting each landlord client's autumn note: the two parts of the January payment, the monthly sum to set aside, and the diary date for 31 July. A person in your office approves every note before it goes out and answers the client who rings back.

This is general information for England, not tax or legal advice.