Payments on Account, Why Your January Self Assessment Bill Is Always Bigger Than You Expect

If your January tax bill was double what you expected, payments on account are probably why. Here is how they work and what you can do about them.

What Are Payments on Account?

Payments on account are advance payments towards your next year's tax bill, collected alongside your current year's balancing payment. HMRC collects them because self-employed taxpayers pay tax in arrears, and the government wants to reduce the delay.

The system catches many taxpayers by surprise. You expect to pay one year's tax in January. Instead, you pay one year's tax plus half of next year's estimated bill. The total can be 150 per cent of what you were expecting.

How They Are Calculated

Each payment on account is 50 per cent of your previous year's tax bill. If your tax bill for 2024 to 2025 was £60,000, you pay £30,000 on 31 January 2026 as your first payment on account for 2025 to 2026.

You also pay your £60,000 balancing payment for 2024 to 2025 on the same date. Your total January payment is £90,000. A second payment on account of £30,000 is due on 31 July 2026.

Why January Is Brutal

You pay the previous year's balancing payment plus a full year's advance in one month. For barristers, solicitors, partners, and high-earning self-employed professionals, this can mean a very large sum at the worst possible time of year.

January follows the Christmas period, when many businesses experience lower revenue. The combination of reduced income and a large tax bill creates a predictable cash flow crisis every year.

Who Faces This

Anyone with self-assessment tax due above £1,000 who does not have more than 80 per cent collected at source through PAYE. The typical sufferers are self-employed professionals, company directors with dividend income, LLP partners, landlords with significant rental income, and high earners with investment income.

What Can You Do About It?

Finance the bill. A self-assessment tax loan arranged through a specialist broker means the full amount is paid to HMRC on time. You repay over 3 to 12 months in manageable instalments.

The July payment on account can also be financed using the same product. This spreads both payments across the year rather than concentrating them in two large lumps.

Can You Reduce Payments on Account?

If your income has fallen significantly, you can apply to HMRC to reduce your payments on account. Be careful: if you reduce them too aggressively and your income remains high, HMRC charges interest on the shortfall.

Only reduce payments on account if you are genuinely confident your income has dropped. If in doubt, finance the full amount and claim any overpayment back from HMRC after your return is filed.

Facing a large self-assessment bill? We can arrange finance to spread the cost.