Payments on account

Advance instalments towards next year's Self Assessment bill, based on this year's. The reason a first tax bill is bigger than expected.

What it means

If your Self Assessment bill is above a small threshold and less than 80% of your tax was collected at source, HMRC asks for two payments on account towards the following year — each half of the current year's bill — due on 31 January and 31 July.

Why it matters

A first-time filer expecting to pay one year's tax in January finds themselves paying that plus half of the next year's, which is 150% of the number they had in mind, at the worst possible point in the calendar.

Once you are in the cycle it evens out. Getting into it is the shock.

What it looks like in practice

If you know your income has genuinely fallen, you can apply to reduce the payments on account — but if you reduce them too far, HMRC charges interest on the shortfall.

The safe approach is to set aside tax as a percentage of profit every month from the start, treating it as money that was never yours.

What to watch out for

Reducing the payments optimistically. Interest is not a penalty and applies regardless of intent.

Forgetting the 31 July payment, which arrives with no return and no reminder attached to any activity.

Where to get proper advice

GOV.UK explains the calculation. Your accountant will tell you the July figure at the same time as the January one if you ask.