Payments on Account: Why Your January Tax Bill Could Be Bigger Than Expected
You complete your Self Assessment tax return and calculate that you owe HMRC £4,000.
So you expect to pay £4,000 in January.
Then you look at the amount HMRC actually wants:
£6,000.
That does not necessarily mean your tax calculation is wrong.
The additional £2,000 could be your first payment on account towards the following tax year.
Payments on account are advance payments towards your next Self Assessment bill. They are one of the main reasons first-time Self Assessment taxpayers can face a much larger January payment than expected. GOV.UK
What are payments on account?
Payments on account are advance instalments towards your next Self Assessment tax bill.
Where they apply, HMRC normally asks you to make two payments each year:
- First payment on account — 31 January
- Second payment on account — 31 July
Each payment is normally half of the relevant previous year’s tax liability. GOV.UK
This means January can involve paying tax for two different tax years at the same time.
Why can the January bill be so high?
Your January payment can contain two separate amounts:
1. Your balancing payment
This settles any remaining tax due for the tax year covered by the return.
2. Your first payment on account
This is an advance payment towards the following year’s liability.
HMRC confirms that both can fall due on 31 January. GOV.UK
That’s why the amount leaving your bank account can be significantly higher than the headline tax liability shown for the year you’ve just completed.
A simple example
Suppose this is your first year where payments on account apply.
Your Self Assessment bill for 2025/26 comes to:
£4,000
You have not previously made payments on account towards that liability.
Your position could look like this:
| Payment | Amount |
|---|---|
| 2025/26 tax bill | £4,000 |
| First 2026/27 payment on account | £2,000 |
| Due 31 January 2027 | £6,000 |
| Second 2026/27 payment on account due 31 July 2027 | £2,000 |
Your January payment is therefore 50% higher than the £4,000 tax bill you initially expected.
HMRC uses the same principle in its official examples: where a first-time filer has a £3,000 liability, £4,500 can be due in January once the first £1,500 payment on account is added. GOV.UK
Are you paying tax twice?
No.
This is one of the most important things to understand.
The extra money is not another tax charge on the same income.
Your payments on account are credited towards the following year’s Self Assessment liability.
Using our previous example:
31 January 2027: £2,000 paid towards 2026/27
31 July 2027: another £2,000 paid towards 2026/27
You have now paid £4,000 in advance towards your eventual 2026/27 liability.
When your 2026/27 return is prepared, the final calculation determines whether that was enough.
What if your actual tax bill is exactly the same?
Suppose your final 2026/27 liability also comes to £4,000.
You have already paid:
£2,000 in January + £2,000 in July = £4,000
There would therefore be no balancing payment for that year, assuming those payments fully cover the relevant liability.
However, if payments on account continue to apply, your first payment towards 2027/28 could still become due on 31 January 2028.
This is why payments on account can initially feel like an extra tax bill but eventually become part of the normal Self Assessment payment cycle.
What if your tax bill increases?
Suppose your payments on account total £4,000.
But when your return is eventually completed, your actual relevant tax liability is £5,500.
You have already paid:
£4,000
That leaves:
£1,500
The remaining £1,500 is the balancing payment.
HMRC explains that a balancing payment is due where the payments on account you’ve already made do not cover the eventual tax liability. GOV.UK
And there can be another sting.
Your next payments on account may now be based on the higher liability.
So the amount due in January could include both:
£1,500 balancing payment
plus
a new first payment on account
This is another reason January bills can jump sharply when income or profits increase.
When do payments on account apply?
You will generally need payments on account unless either:
- Your previous year’s relevant tax bill was less than £1,000, or
- More than 80% of the tax you owed was collected outside Self Assessment, for example through PAYE. GOV.UK
This means not everyone who completes Self Assessment has to make payments on account.
For example, someone with most of their tax already deducted from their salary may have a different position from a self-employed person whose tax is largely collected through Self Assessment.
Why first-time Self Assessment taxpayers can get caught out
The first significant Self Assessment payment can be particularly painful because you may not have experienced payments on account before.
Imagine you became self-employed and eventually discovered that your first substantial Self Assessment liability was £8,000.
You might have carefully saved:
£8,000
But if payments on account apply, your January requirement could potentially include:
£8,000 current liability
plus
£4,000 first payment on account
That produces a January cash requirement of:
£12,000
Then another £4,000 could be due on 31 July.
This is why understanding payments on account before January matters.
Why HMRC uses payments on account
Without payments on account, someone whose income is taxed through Self Assessment could potentially earn income for a substantial period before the corresponding tax was finally paid.
Payments on account bring some of that tax forward.
HMRC describes them as advance payments towards your next tax bill that help spread the cost through two instalments. GOV.UK
For taxpayers, however, the first year of entering the system can create a significant cash-flow adjustment.
What if your income is going to fall?
This is important.
Payments on account are based largely on the previous year’s position.
But your circumstances might have changed.
Perhaps:
- Your self-employed profits have fallen
- You’ve stopped trading
- You’ve reduced your hours
- Rental profits have fallen
- More of your tax is now being deducted at source
- You’re entitled to additional tax relief
In those circumstances, paying the automatically calculated payments on account could result in you paying significantly more upfront than your eventual liability.
HMRC therefore allows taxpayers to claim to reduce their payments on account where they expect the relevant tax bill to be lower. GOV.UK
How do you reduce payments on account?
HMRC allows you to apply online or use form SA303.
Its guidance says a reduction can be appropriate where, for example:
- Business profits or other income have decreased
- Tax relief has increased
- More tax will be deducted at source than in the previous year
You need to estimate the lower liability on a reasonable basis. GOV.UK
You can also use your HMRC online account and select Reduce payments on account. GOV.UK
Don’t reduce them just because you don’t want to pay them
Reducing payments on account is not simply a way of delaying a tax bill.
You should have a genuine basis for expecting your liability to fall.
HMRC warns that if you reduce your payments too far and your eventual tax bill is higher than expected, interest can be charged on the difference. GOV.UK
So if last year’s unusually high profits are unlikely to be repeated, a reduction may be appropriate.
If you’re expecting another strong year but simply want to keep the cash in your bank account for longer, reducing the payments without justification can create problems later.
What if your income increases instead?
Your payments on account do not automatically increase every time your current-year income rises.
That can create the opposite problem.
Suppose your payments on account were based on £4,000 of relevant tax, but your business grows significantly and your eventual liability becomes £7,000.
Your £4,000 of advance payments will not cover the final amount.
That creates a £3,000 balancing payment.
And your following payments on account could then be based on the higher liability.
This can make the next January payment particularly substantial.
Your July payment matters too
January receives most of the attention, but don’t forget 31 July.
The second payment on account is normally due then. GOV.UK
If your first payment was £3,000 in January, another £3,000 may be required in July.
Businesses that fail to budget for July can face a cash-flow problem halfway through the year.
Treat both dates as part of your annual tax planning.
Completing your tax return early helps
You do not have to wait until January to find out what you owe.
HMRC actively encourages taxpayers to file earlier so they can establish the liability and budget ahead. Filing early does not bring the normal January payment deadline forward. GOV.UK
That means completing your return in October could give you several months to prepare for:
your balancing payment + your first payment on account.
That is much better than discovering the figure days before the deadline.
You can make payments before January
You also don’t necessarily have to leave the entire payment until the deadline.
HMRC allows taxpayers who are up to date to set up a Budget Payment Plan and make regular weekly or monthly Direct Debit payments towards their next Self Assessment bill. GOV.UK
For example, if you expect to owe £6,000 and have several months before the deadline, gradually putting money towards the bill can make the final payment easier to manage.
If the plan does not fully cover your liability, the remaining amount still needs to be paid by the relevant deadline. GOV.UK
Check your HMRC account
If you’re unsure whether payments on account apply, check rather than guessing.
HMRC says your Self Assessment statement or online account will show the amounts due.
Within your online account you can view your statement and see:
- Payments on account already made
- Upcoming payments on account
- Amounts due towards your next tax calculation GOV.UK
This is particularly useful if you cannot understand why the amount requested differs from the tax calculation you were expecting.
Frequently Asked Questions
Why is my January tax bill 50% higher than expected?
A common reason is that your January payment includes both your outstanding Self Assessment liability and your first payment on account towards the following year. GOV.UK
Are payments on account extra tax?
No. They are advance payments towards your next Self Assessment liability.
When are payments on account due?
Normally 31 January and 31 July. GOV.UK
How much is each payment?
Each payment is normally half of the relevant previous year’s tax liability used for payments-on-account purposes. GOV.UK
Does everyone completing Self Assessment pay them?
No. HMRC says payments are not required where the relevant previous-year tax was below £1,000 or where more than 80% of the tax was collected outside Self Assessment. GOV.UK
Can I reduce my payments on account?
Yes, where you reasonably expect your relevant tax liability to be lower. HMRC allows claims online or through form SA303. GOV.UK
What happens if I reduce them too much?
HMRC can charge interest on the shortfall if your eventual liability turns out to be higher than your reduced payments. GOV.UK
Final thoughts
Payments on account are not particularly complicated once you understand what they’re doing.
The problem is that many people encounter them after calculating their first major Self Assessment bill.
They expect £4,000 and discover HMRC wants £6,000.
They expect £8,000 and discover January could require £12,000.
The additional amount isn’t duplicate tax. It is money being paid in advance towards the following tax year.
Knowing that in October gives you time to plan.
Discovering it in late January can create a serious cash-flow problem.
At Merranti Accounting, we can calculate your Self Assessment liability, explain your payments on account, assess whether a reduction may be appropriate and help you plan ahead for the January and July payment dates.
Written by Jenny Seaford ACPA
Senior Accountant, Merranti Accounting
Jenny works with individuals and businesses on their accounting and tax requirements, helping clients understand their liabilities and plan ahead for upcoming tax payments.
