Payments on account explained
Payments on account are advance payments towards next year's tax bill, each equal to half of this year's. They apply if you owe more than £1,000 and less than 80% of your income is taxed at source. They are due on 31 January and 31 July, which makes a first tax bill 150% of what people expect.
Why your first bill is so much bigger than you budgeted
This is the single most common shock in a first year of self-employment, and nothing about the system warns you.
Say your first tax bill is £4,000. On 31 January you pay that £4,000, plus a first payment on account of £2,000 towards next year. £6,000 goes out. Then on 31 July another £2,000 follows.
You have paid £8,000 in six months against a £4,000 liability. The money is not lost, it is sitting against next year, but the cash flow surprise sinks people.
| Date | What is due | Amount |
|---|---|---|
| 31 January | Balancing payment for year 1 | £4,000 |
| 31 January | First payment on account for year 2 | £2,000 |
| 31 July | Second payment on account for year 2 | £2,000 |
| Total within six months | £8,000 |
When they apply
Both conditions have to be met: your Self Assessment bill is over £1,000, and less than 80% of your total tax was collected at source through PAYE or similar.
So someone employed on PAYE with a small amount of rental income usually escapes them, because most of their tax was deducted at source. A full-time sole trader almost never does.
Capital Gains Tax and student loan repayments are excluded from the calculation.
Reducing them
If you know next year will be worse, you lost a client, you are taking a sabbatical, the business has slowed, you can apply to reduce your payments on account.
Be careful. If you reduce them too far, HMRC charges interest on the shortfall from the original due date, and can charge a penalty if the claim was made carelessly. Reduce them on evidence, not optimism.
The reliable way to avoid the shock is to file early. File in May and you know in May what is due the following January, instead of finding out three weeks before.
If you cannot pay
Set up a Time to Pay arrangement with HMRC before the deadline rather than after. Doing so prevents the late payment penalties, though interest still accrues.
Many people can set this up online without speaking to anyone, provided the debt is below the threshold and the return is already filed.
This guide is general information, current at 10 November 2026. Tax rules change and depend on your circumstances. Please take advice before acting on it.