You submitted your Self Assessment return expecting to pay the tax shown for the year. Then the January total comes back roughly 50% higher than you anticipated, and there’s another payment sitting in July too. Before you call HMRC to complain about being charged twice, take a breath; they almost certainly haven’t.
What you’re looking at is most likely the completed year’s tax bill combined with an advance payment towards the next one. The two amounts arrive at the same time, on the same date, which makes the bill look alarming when it’s actually structured exactly as it should be.
Why Is My First Self Assessment Bill So Much Higher Than Expected?
Payments on account are advance payments towards your next Self Assessment bill.
HMRC collects them in two instalments across the year:
The first on 31 January
The second on 31 July
Each one is normally calculated at 50% of the relevant tax liability from the previous year, so by the end of July you’ll have covered your estimated tax bill for the following year.
The relevant amount covers Income Tax and Class 4 National Insurance. It does not include Capital Gains Tax, student loan repayments, or Class 2 National Insurance. Those are collected separately through what’s called the balancing payment, not through the two payments on account.
Payments on account are required unless one of two conditions applies:
- Your relevant tax liability from the previous year was less than £1,000
- Or more than 80% of your tax was collected at source, through PAYE, for example.
If neither of those applies to you, expect payments on account to feature in your January and July bills.
The reason the first January payment feels so harsh is the timing. It doesn’t just contain the advance payment for the coming year; it can also include the full liability for the year just completed, if no previous payments on account have been made.
| Why the first bill hurts Say the relevant tax liability for the completed year is £4,000, and no previous payments on account have been made. The January calculation could look like this: What is being paid Amount Final liability for the completed year £4,000 First payment on account for the next year £2,000 Total due on 31 January £6,000 A further £2,000 then falls due on 31 July as the second payment on account. Half of the £8,000 paid across those two dates is advance tax. It is not an extra charge on top of what was already owed. |
How Can I Work Out What My Payments on Account Will Be?
The calculation is more straightforward than it looks, and working it out yourself before HMRC presents the figures puts you in a much stronger position.
Take a self-employed person whose 2025/26 Self Assessment liability comes to £4,000. They have not previously made payments on account. Here is what their payment timeline looks like:
| Payment date | What is being paid | Amount |
| 31 January 2027 | Final liability for 2025/26 | £4,000 |
| 31 January 2027 | First payment on account for 2026/27 | £2,000 |
| Total due 31 January 2027 | £6,000 | |
| 31 July 2027 | Second payment on account for 2026/27 | £2,000 |
HMRC uses the previous year’s liability as its starting estimate, splitting it equally across the two dates. What happens the following January depends on how the next year’s actual bill compares to those advance payments.
Three scenarios are worth understanding:
If the next bill is also £4,000: The two £2,000 payments cover it exactly. No balancing payment is due, though a first payment on account for the year after will still arise, i.e. £2,000 in January and £2,000 in July.
If the next bill rises to £5,000: The £4,000 paid on account leaves a £1,000 balancing payment. So, in January, you’ll need to settle the £1,000 + 50% of next year’s estimate (£2,500), so £3,500 in total.
If the next bill falls to £3,000: The £4,000 paid on account exceeds the final liability. HMRC will either refund the excess or allocate it against another amount owed. So, HMRC would owe you £1,000 for the current year. However, the 50% estimate for next year is £1,500. In real terms, you’d simply owe £500 in your account.
| Your January figure: Final tax liability for the completed year MINUS payments on account already made PLUS the first payment on account for the next year = total due on 31 January |
To see figures specific to your own return, sign in to your HMRC online account, open your latest Self Assessment return and select View statements. This shows amounts already paid and future payments currently requested. You can also use the SelfEmployed360 tax calculator to estimate your liability before you file.
How Do I Save Enough for Payments on Account?
The calculation is only useful if it’s attached to a saving plan. Here’s a system that works whether you’ve just filed your first return or you’ve been catching up on a January shock.
Step 1: File the return early
The tax year ends on 5 April. Your return can be prepared from that date. The online filing deadline is 31 January, but waiting until January to submit is one of the main reasons people get caught out.
Filing early does not bring the payment deadline forward: the January and July dates stay the same. What it does do is give you the confirmed figures well in advance, leaving time to save, adjust or question the calculation if something looks wrong.
Step 2: Set a cash target
Rather than saving a rough percentage and hoping it’s enough, work backwards from a known figure:
| Monthly saving target: Amount due at the next deadline MINUS money already held in your tax pot DIVIDED by the number of months remaining = what to set aside each month |
In practice: if £6,000 is due in ten months and you already have £1,500 saved, you need to set aside £450 a month. That’s a more reliable target than 20% of income, because it’s based on what you actually owe rather than a broad estimate.
Step 3: Use a separate tax pot
Keep tax money completely separate from normal business funds. Move an amount across whenever an invoice is paid, weekly, or at the end of each month. If your income is seasonal, transfer more during stronger months rather than trying to force the same contribution every month.
Step 4: Review quarterly
At least four times a year, compare: profit earned so far, expected profit for the rest of the year, tax already saved, payments already made to HMRC, and the next January and July amounts. If the numbers are drifting, adjust the monthly contribution now rather than waiting until December.
The HMRC Budget Payment Plan
If you’re up to date with previous Self Assessment payments, you can set up a Budget Payment Plan with HMRC. This allows you to make voluntary Direct Debit payments towards your next bill in advance. It’s not a debt arrangement; it’s simply a way to pay Self Assessment monthly or weekly before the deadline arrives.
Should I Reduce My Payments on Account?
HMRC allows you to apply for a reduction, but this option is specifically for situations where the previous year’s liability was higher than what you expect to owe this year, not for situations where cash is tight.
Valid reasons for reducing payments on account include: profits or other income expected to fall, increased tax reliefs or allowances available, more tax being deducted at source than in the previous year. Practical examples might include losing a major client, pausing self-employment, taking extended parental or sick leave, moving into PAYE employment, or incurring significantly higher allowable expenses.
The process is straightforward. Sign in to your HMRC online account, open your latest Self Assessment return, and select Reduce payments on account. Enter the revised amount you expect to owe. You can also submit form SA303 by post if you prefer.
| Reduce the payment when: ✓ There is evidence that the final liability will be lower ✓ The revised estimate is based on up-to-date figures ✓ You will review the forecast if circumstances change Do not reduce it simply because: ✗ Cash flow is currently tight ✗ A client hasn’t paid an invoice yet ✗ You want to delay paying HMRC ✗ You’re guessing rather than forecasting Reducing payments on account does not reduce the final tax liability; only what you pay in advance. If you reduce too far and the eventual bill is higher, HMRC can charge interest on the shortfall from the original payment dates. |
What Should I Do If I Cannot Afford the Payment?
The action you take depends on whether the deadline has passed or is still ahead of you.
If the deadline hasn’t arrived yet
Make whatever payments you can before the due date. If you’re up to date with previous bills, a Budget Payment Plan allows you to make advance contributions before the deadline. Recheck whether a genuine reduction is appropriate based on expected liability, not because of cash flow alone.
If you cannot pay by the deadline
Contact HMRC about a Time to Pay arrangement. This allows overdue tax to be repaid in monthly instalments. Have your UTR, UK bank details and a summary of income and outgoings ready. The arrangement can often be set up online, though those with more complex situations may need to contact HMRC directly.
Do not reduce your payments on account as a way of managing an affordability problem. That’s a separate issue and using the reduction mechanism incorrectly can lead to interest charges later. If you genuinely cannot pay, the Time to Pay route is the right one.
Act promptly. Interest applies to tax paid after its due date, and ignoring reminders does not pause the clock. The sooner you make contact, the more options are available.
Your No-Surprises Payment on Account Plan
Here’s the complete checklist:
- Check whether the £1,000 rule or the 80% at-source rule removes the requirement for payments on account.
- Sign in to your HMRC online account and check View statements to see payments made and amounts currently due.
- Estimate the final liability as early in the tax year as possible. Don’t wait for January.
- Write your payments on account dates into your calendar now: 31 January and 31 July
- Calculate the monthly amount needed for your tax pot using the formula above.
- Review the forecast at least every quarter and adjust contributions if income changes.
- Apply to reduce payments or contact HMRC only when there’s a legitimate reason and through the proper process.
- Use accounting software that tracks your income and expenses throughout the year. It will make estimating your tax liability significantly easier and remove much of the guesswork before January arrives.
Payments on account are most painful when they’re discovered in January with no savings behind them. The calculation itself isn’t complicated; what causes the shock is encountering it for the first time without preparation.
Calculate the likely amount early. Put both deadlines in your calendar. Save towards a specific monthly target rather than a vague percentage. Review the forecast during the year, and contact HMRC promptly if circumstances change. The bill doesn’t get smaller, but it stops being a surprise.
FAQ
No. It applies automatically when the relevant liability reaches the required level, and less than 80% of the tax has been collected elsewhere. You don’t opt in: it’s built into the Self Assessment calculation.
It can contain 100% of the completed year’s bill plus a 50% advance payment towards the following year, both due at the same time on 31 January. The July payment is the second 50% advance.
They generally include Class 4 National Insurance. Class 2 contributions, student loan repayments and Capital Gains Tax are not included in the two payments on account; these are dealt with through the balancing payment.
Potentially, but only where the expected relevant liability genuinely supports that reduction. If the eventual liability is higher than the reduced amount, HMRC can charge interest on the difference from the original due dates.
HMRC sets two formal deadlines: 31 January and 31 July. However, taxpayers who are up to date with previous payments can make voluntary advance contributions through a Budget Payment Plan. Any remaining balance must be settled by the deadline.
The excess will either be refunded to your bank account or allocated against another amount owed to HMRC. It won’t sit unclaimed indefinitely; HMRC will usually action it once the return is finalised.
No. MTD introduces digital record-keeping and quarterly updates, but the annual return and the existing January and July payment timetable remain unchanged.
