Few things rattle a newly self-employed person more than logging into HMRC, expecting one tax bill, and finding what looks like one and a half. That extra chunk is your first payment on account — and it catches almost everyone out the first time. It is not a penalty or a mistake; it is HMRC asking you to pay part of next year's tax in advance.

Once you understand how payments on account work, they stop being a nasty surprise and become a predictable part of your cash-flow planning. This guide explains what they are, how they are calculated, the dates that matter, and how to reduce them safely when your income drops.

This article is general information, not tax advice. Tax rules and thresholds change, so confirm the current figures and your own position on GOV.UK or with a qualified accountant before acting.

What payments on account actually are

Payments on account are advance payments towards your Self Assessment tax bill. Rather than letting tax build up for a whole year and then collecting it all at once, HMRC asks you to pay it in two instalments through the year, based on an estimate of what you will owe.

That estimate is simply last year's bill. HMRC assumes your income will be roughly the same, so it asks you to pay the same amount again, split into two. You are not being charged twice — you are pre-paying the coming year, and it all squares up when you file your next return.

Most self-employed people and others outside PAYE fall into the system once their tax bill passes a threshold. There are exceptions — for example, if most of your tax is already collected at source — so check whether the rules apply to you on GOV.UK.

How the calculation works

Each payment on account is normally half of your previous year's tax bill. Importantly, payments on account usually cover income tax and Class 4 National Insurance, but not Class 2 National Insurance or the high-income child benefit charge, which are settled separately. If you are unsure how the National Insurance side fits together, it is worth reading our overview of National Insurance for small businesses.

So if last year you owed £4,000 in income tax and Class 4 NIC, you would make two payments on account of £2,000 each towards the following year.

The January and July deadlines

There are two fixed dates each year, and missing them costs you interest:

  • 31 January — your first payment on account for the current tax year, due alongside any balancing payment for the previous year.
  • 31 July — your second payment on account.

When you file your next return, HMRC compares what you actually owed against the two payments you have already made. If you owed more, you pay the difference — the "balancing payment" — by the following 31 January. If you owed less, you get a refund or a credit.

One quirk worth noting: the July payment is based on the same figure as January, even if you have not yet filed the return for the year it relates to. HMRC simply repeats last year's estimate. That is why the system only fully reconciles once your next return is in — and why filing early, well before the January deadline, is a good habit. It does not change when you pay, but it tells you exactly what is coming, removing the guesswork from your planning.

Why the first year feels like double

Here is the moment that trips people up. Imagine your first full year of self-employment produces a tax bill of £4,000. On the 31 January deadline you must pay:

  • The £4,000 balancing payment for the year just gone, plus
  • £2,000 as your first payment on account for the current year.

That is £6,000 in one go, followed by another £2,000 the following July. So your first "tax bill" is effectively 150% of a normal year, all because you are catching up and pre-paying at the same time. It only feels like double because it is bunched into a single date, and because nobody warned you when you started trading.

The first January is the hard one. After that, half your tax is already paid before each return is even due — the system smooths out and stops biting.

The cure is to see it coming. Put money aside from day one so the bill is funded rather than feared — this is exactly where good cash-flow management earns its keep.

Reducing your payments on account safely

Because payments on account assume your income stays flat, they can be too high if you expect to earn less — perhaps you have scaled back, lost a major client, or changed how you trade. You can apply to reduce your payments on account through your HMRC online account or on your return.

But do this carefully. If you reduce them too far and end up owing more than you paid, HMRC charges interest on the shortfall from the original due dates. The safe approach is to base any reduction on a genuine, well-founded estimate of lower profits, not wishful thinking. If your income is simply uncertain, it is often better to pay in full and reclaim any overpayment later than to gamble and face an interest charge.

Practical steps to stay in control

  • Save as you go. Set aside a percentage of every payment you receive into a separate tax pot so the January and July bills are already covered.
  • Keep clean records. Accurate bookkeeping makes your return faster and your numbers trustworthy if HMRC ever asks questions.
  • Claim everything you are entitled to. Lowering your taxable profit lowers your bill — and your future payments on account. Make sure you understand your allowable business expenses.
  • Diarise the dates. Note 31 January and 31 July well in advance, and read up on the wider Self Assessment deadlines and penalties so nothing slips.

Frequently asked questions

Do I always have to make payments on account?

Not necessarily. You generally fall into the system once your Self Assessment tax bill exceeds a set threshold and not enough of your tax is already collected at source. If your last bill was below the threshold, you usually pay it in one go by 31 January instead. Check the current threshold on GOV.UK.

What happens if I cannot afford the January bill?

Do not simply ignore it. HMRC offers a Time to Pay arrangement that lets eligible taxpayers spread the cost over instalments, and applying before the deadline looks far better than missing it. Interest still applies, but you avoid the worst penalties.

Will my payments on account go down if I earn less this year?

They can. You can apply to reduce them to reflect lower expected profits, but if you underestimate and pay too little, HMRC charges interest on the difference. Only reduce them on a realistic estimate, and keep evidence of why.

Steady, predictable income makes tax bills far easier to plan for — and public-sector contracts can be a reliable source of it. Take a look at the latest opportunities and search live UK tenders to see what work might suit your business this year.