Payments on account, and why the first bill is so big

How they work

When you're employed, tax comes out of each payslip. When you're self-employed, HMRC doesn't see your income until you file a return, which can be up to ten months after the tax year ends. Payments on account close that gap by collecting this year's tax in two instalments, based on what you owed last year.

Each payment is half of last year's bill. Once you file this year's return, you settle the difference with a balancing payment the following 31 January. If you earned more than the year before, you pay the extra. If you earned less, the difference comes off what you owe, or HMRC refunds it.

They cover Income Tax and Class 4 National Insurance. Student loan repayments and Capital Gains Tax aren't included: they're paid in full with the balancing payment.

Who has to make them

You make payments on account unless one of these is true:

• last year's Self Assessment bill was less than £1,000, or
• more than 80% of last year's tax was taken before it reached you, for example through PAYE on a job or pension.

So someone with a salary and a small amount of freelance income often never makes them. Someone whose main income is self-employment almost always does from their second bill onwards.

Worked example: the first two years

Sam starts working for herself in the 2025/26 tax year and makes a profit of £40,000. She has no other income and lives in England. Her bill for that year is £5,486 of Income Tax and £1,645.80 of Class 4 National Insurance, £7,131.80 in total. Because it's her first year, she hasn't made any payments on account yet.

In 2026/27 her profit rises to £45,000, so her bill for that year is £8,431.80. She has already paid £7,131.80 of it on account, which leaves a balancing payment of £1,300. On top of that comes the first payment on account for 2027/28: half of £8,431.80, or £4,215.90.

The January 2027 bill is the one that catches people out. Sam owes nearly £10,700 at once, on a profit that never had any tax taken from it as she went.

See the payment dates for your own profit in the Self-Employed Tax calculator →

Reducing them

If you know this year's income will be lower, for example because you've had a quiet year or stopped trading, you can ask HMRC to reduce your payments on account. You can do it online in your HMRC account (choose "Reduce payments on account") or by sending form SA303.

Be realistic about it. If you reduce them and your final bill turns out higher, HMRC charges interest on the difference from the original due dates. Paying late costs the same way: interest at the Bank of England base rate plus 4%, and penalties on a balancing payment that's more than 30 days late.

Making it manageable

Set money aside every month. Putting a fixed share of each payment you receive into a separate savings account is the simplest way to avoid a January shock. The Self-Employed Tax calculator works out a monthly figure for your profit.

Plan for the first year. Your first bill covers a year and a half of tax, so it's worth saving from the very first invoice.

Making Tax Digital doesn't change the dates. Since April 2026, people with self-employed and property income over £50,000 send HMRC quarterly updates (over £30,000 from April 2027). Those updates are reports, not payments: the 31 January and 31 July payment dates stay the same.

Don't forget the student loan. If you're repaying one through Self Assessment, the whole year's repayment is due with the balancing payment, not spread across the payments on account.