The final reconciliation in Self Assessment — the top-up (or, occasionally, the refund) once your real bill is compared with what you prepaid.
If payments on account are estimates, the balancing payment is the truth. Once your tax return is filed and your actual income for the year is known, HMRC compares what you really owed with what you prepaid and squares the difference. Most of the time that means a top-up on 31 January; occasionally, when income dipped, it means money coming back.
Self Assessment collects tax in three moves. During the year you make two payments on account, each 50% of your previous year's liability, on 31 January and 31 July. These are estimates based on the past. The balancing payment is the third move: after you file your return and HMRC knows your actual figures, it works out the gap between what you truly owed and what those estimates covered.
Because income rarely stays identical year to year, there is almost always a difference to settle.
Take Nadia, a freelance developer. Her 2023/24 liability was £8,000, so during 2024/25 she made two payments on account of £4,000 each (31 January 2025 and 31 July 2025), totalling £8,000 prepaid towards 2024/25.
But 2024/25 was a strong year. When she files her return, her actual 2024/25 liability is £11,000.
| Item | Amount |
|---|---|
| Actual 2024/25 liability | £11,000 |
| Less payments on account already made | (£8,000) |
| Balancing payment due 31 Jan 2026 | £3,000 |
On top of that £3,000, the same 31 January 2026 date brings her first payment on account for 2025/26 — 50% of the new £11,000 liability = £5,500. So Nadia pays £3,000 + £5,500 = £8,500 on 31 January 2026. Model your own figures with the sole trader calculator so the January total never surprises you.
If income falls, your payments on account — based on a higher prior year — can exceed your actual liability. The balancing figure then becomes a credit. HMRC will either refund it to your bank account or, more usually, set it against your next payment on account. This is why a quiet year often produces a welcome January refund rather than a bill, and why it can be worth applying to reduce payments on account in advance if you can see income dropping.
The balancing payment is simply honesty catching up with estimation — it makes sure you have paid the exact tax you owed, no more and no less.
Crucially, the balancing payment mops up the items that payments on account do not cover. Payments on account include only Income Tax and Class 4 National Insurance. So your balancing payment is where any Class 2 NI (voluntary for most since April 2024), Capital Gains Tax, student loan repayments through Self Assessment, and the High Income Child Benefit Charge are all settled in full. That is often why the balancing figure is larger than a simple income-rise would imply.
Miss the 31 January deadline and HMRC charges daily late-payment interest from 1 February, with a 5% surcharge once the payment is more than 30 days late, and again at six and twelve months.
TapTax connects to your bank, categorises expenses automatically, and submits quarterly updates to HMRC. Free plan, no card required.
