Your first Self Assessment tax bill looks high because HMRC isn't only charging you for the tax year that has ended, it's also asking you to pay roughly half of next year's tax in advance. That advance charge is called a payment on account, and in your first year it means you pay around 150% of your actual tax bill in one go. It feels brutal, but it's a one-off timing shock, not extra tax.
Here's how it works, and how to soften the blow.
What Are Payments on Account?
Payments on account are two instalments paid towards your next tax bill, including any Class 4 National Insurance if you're self-employed. HMRC assumes your income next year will be similar to this year, so it asks you to pay ahead in two chunks.
You'll have to make payments on account if both of these apply:
- Your last Self Assessment tax bill was more than £1,000, and
- Less than 80% of the tax you owed was already collected at source (for example, through PAYE).
Most newly self-employed people and landlords fall straight into this.
Why Is the First Bill 150% of the Tax I Owe?
Because in year one you pay the tax you actually owe plus the first half of next year's tax at the same time. After that, the system settles into a rhythm.
Say you owe £4,000 in tax for the 2026/27 tax year. Here's what HMRC asks for:
| Date | What you pay | Amount |
|---|---|---|
| 31 January 2028 | Balancing payment (the £4,000 you owe for 2026/27) | £4,000 |
| 31 January 2028 | First payment on account for 2027/28 (50%) | £2,000 |
| 31 July 2028 | Second payment on account for 2027/28 (50%) | £2,000 |
| Total due by 31 Jan 2028 | £6,000 |
So on that first 31 January you hand over £6,000-150% of your £4,000 bill. The £2,000 due in July feels separate, but it's all part of the same cycle starting.
Want to see your own numbers? Run them through our self-employed tax calculator before the deadline lands.
How the Payments on Account Cycle Works After Year One
Once you're in the system it evens out, because the payments on account you made in advance are credited against the next year's bill.
Following the example above, if your 2027/28 tax also comes to £4,000:
- You've already paid £2,000 (January) + £2,000 (July) = £4,000 on account.
- Your balancing payment for 2027/28 is therefore £0.
- But you still set up the next year's payments on account (£2,000 each).
The "double" only ever hits once, in your first year. After that, each January you're simply topping up the difference if your income rose, plus pre-paying the year ahead.
Does Everyone Have to Make Payments on Account?
No. You won't be asked for payments on account if:
- Your last tax bill was £1,000 or less, or
- More than 80% of your tax was already collected at source (common if you have a salaried job alongside a small side income).
If your side income is genuinely small, the trading allowance of £1,000 may even mean you don't need to declare it at all, check our FAQ on when you must register for Self Assessment.
How to Reduce Your Payments on Account
This is the single most useful thing to know if your income has dropped. If you expect to earn less next year, you've gone part-time, lost a major client, or returned to PAYE employment, you can apply to reduce your payments on account.
You do this by submitting a claim to HMRC (form SA303, or directly through your online Self Assessment account) by 31 January after the end of the tax year.
A word of caution: only reduce them if you're confident. If you cut your payments too far and your actual bill comes in higher, HMRC charges interest on the shortfall from the original due dates. The official rules are set out in HMRC's guidance on payments on account.
What if I Can't Afford the Bill?
You're not stuck. HMRC's Time to Pay scheme lets you spread the cost over monthly instalments. If you owe £30,000 or less and you're within 60 days of the payment deadline, you can usually set this up online yourself without phoning HMRC. Interest applies, but it stops the bill becoming a crisis.
Key Tax Figures for 2026/27
For context, the headline allowances and thresholds for the 2026/27 tax year are:
| Item | 2026/27 figure |
|---|---|
| Personal allowance | £12,570 |
| Higher-rate threshold | £50,270 |
| Additional-rate threshold | £125,140 |
| Trading allowance | £1,000 |
| Dividend allowance | £500 |
| VAT registration threshold | £90,000 |
Your payment on account is based on your total Self Assessment liability, income tax plus Class 4 National Insurance, not just one slice of it, which is partly why the number can surprise you.
Frequently Asked Questions
When Are Payments on Account Due?
The two instalments are due by midnight on 31 January and 31 July. The January payment falls on the same day as your balancing payment for the previous tax year, which is why that date feels so expensive.
Do Payments on Account Include National Insurance?
Yes. If you're self-employed, payments on account cover your income tax and your Class 4 National Insurance. They don't include Class 2 NICs or any Capital Gains Tax, which are settled separately in the balancing payment.
What Happens if I Overpay on Account?
If your actual tax bill turns out lower than HMRC estimated, you'll have a credit on your account. HMRC either refunds it or sets it against your next bill, and pays you interest on genuine overpayments.
Is the Second Payment on Account on Top of My Bill?
No. It isn't an extra charge, it's a pre-payment of next year's tax. When you file that return, everything already paid on account is deducted, so you're never taxed twice on the same income.
Payments on account catch out almost every first-time filer, but with a little planning the January shock is entirely manageable. If you'd like us to check whether you can reduce your payments, set up a Time to Pay plan, or simply forecast next year's bill so there are no surprises, get in touch with the Zmartly team and we'll sort it for you.
