Why the first year feels like a double bill
In your first year of Self Assessment you pay the tax for that year in full, and at the same time HMRC asks for the first payment on account toward the next year. That is why January can feel like paying one and a half times the tax. It is not an extra charge, it is simply paying ahead.
How payments on account work, step by step
- Check whether they apply. They apply if your last Self Assessment bill was over £1,000 and less than 80% of your tax was collected at source, for example through PAYE.
- Work out each instalment. Each payment on account is half of your previous year's tax bill. So a £4,000 bill means two instalments of £2,000.
- Pay on the due dates. The first is due 31 January with your balancing payment, the second on 31 July.
- Settle up the following January. When you file the next return, HMRC compares the payments on account to the actual bill. You pay any shortfall, or claim a refund, on 31 January.
How to reduce payments on account
If you know your income has fallen, you can apply to reduce your payments on account so you are not overpaying. Take care though: reduce them too far and HMRC charges interest on the shortfall. It is a balance worth getting right.
Not sure what to set aside?
Payments on account catch a lot of people out. TaxTune works out exactly what you owe and when, tells you what to put aside each month, and applies to reduce the instalments where your income has genuinely dropped.
Take the surprise out of January
We prepare your return, tell you the exact tax and payments on account to the penny, and give you a clear timeline so nothing lands unexpectedly. Fixed fee, agreed up front.
Frequently asked questions
What are payments on account?
They are advance instalments toward your next tax bill. If your bill is over £1,000, HMRC asks for half of the expected next bill on 31 January and the other half on 31 July.
Why do I have to pay tax in advance?
HMRC uses payments on account to spread the cost and collect tax closer to when income is earned. It applies once your bill passes £1,000 and most of your tax is not already collected at source.
Can I reduce my payments on account?
Yes. If your income has fallen you can apply to reduce them. Be careful not to reduce them too far, because HMRC charges interest on any resulting shortfall.
When are payments on account due?
The first is due 31 January alongside your balancing payment, and the second on 31 July.
Do payments on account apply in my first year?
Yes, if your first bill is over £1,000. That is why the first January can feel like paying one and a half times the tax, as you pay the year in full plus the first instalment ahead.