Written by the TaxTune Editorial Team·Reviewed by our qualified accountants·Updated June 2026

What this letter usually means

If your Self Assessment statement or notice shows a figure that seems too high, it is very often because it includes payments on account. These are advance payments towards your next tax year, collected before that year has finished.

The idea is that HMRC ask you to pay your tax in two instalments through the year, rather than all in one go later. Each payment on account is normally half of your previous year's tax bill. The first is due by 31 January and the second by 31 July. They sit alongside any balancing payment for the year just gone.

So the notice is not a penalty and it does not mean you have done anything wrong. It is simply how the system spreads your tax. The reason it can feel like a shock, especially the first time, is that you may be settling last year's tax and making the first advance payment for the new year at the same moment.

Who it affects

Payments on account apply to most people in Self Assessment once their tax reaches a certain level. To be more precise, they are required if your last Self Assessment bill was over £1,000 and less than 80 percent of your tax was collected at source, for example through PAYE.

That means they commonly affect the self employed, landlords and people with significant untaxed income. If most of your tax is already taken through your wages, you may not have to make them at all. If you are new to all this, our overview of Self Assessment explains how the whole system fits together.

First year taxpayers feel this the most. In your first year you can end up paying around one and a half years of tax at once, because you settle the full bill for your first year and immediately make a payment on account towards the second. It is not an extra charge, but it can be a genuine cash flow surprise if no one has warned you.

What you must not ignore

The most important thing to understand is that the large January figure is usually made up of three parts.

  • The balancing payment: the remaining tax for the year that has just ended.
  • The first payment on account: an advance payment towards the current year, normally half of last year's bill.
  • The second payment on account: a further advance payment, normally the other half, due by 31 July.

Because the second payment lands in July, it is easy to forget once January is dealt with, then it catches people out a few months later. You should also not assume the payments on account are wrong just because they look high. They are based on last year, so they can be too high if your income has fallen, which is something you can address rather than ignore. What you must not do is leave the bill unpaid, because a late payment penalty and interest can then apply.

What you may need to gather

To understand and plan for your payments on account, it helps to have a few things in front of you.

  • Your latest Self Assessment statement or tax calculation showing the amounts and due dates.
  • Last year's tax figure, since the payments on account are based on it.
  • A realistic view of whether your income this year is likely to be higher, lower or similar.
  • Records of any tax already collected at source, such as through PAYE.
  • Your Unique Taxpayer Reference and Government Gateway details.

If you think your income will fall, gathering evidence of that now will help you decide whether to apply to reduce the payments. A simple cash flow plan, setting money aside for the July payment, can also make a real difference and stop the next instalment coming as a shock.

What to do, step by step

Approach this calmly and in order.

  • Read the statement carefully and identify the three parts, the balancing payment and the two payments on account.
  • Note both dates, 31 January and 31 July, and put the July payment in your diary now so it does not surprise you.
  • Plan how to pay. If you cannot pay in full, contact HMRC about a payment plan rather than missing the deadline.
  • Consider whether to reduce the payments. If your income will genuinely fall, you can apply to reduce your payments on account so you are not paying more than you will owe.
  • Reduce carefully. If you cut them too far and end up owing more than you paid, HMRC charge interest on the shortfall, so base any reduction on a realistic estimate.

For all the key dates in one place, our guide to UK tax deadlines is a helpful reminder. Never reduce your payments simply to lower the January figure without good reason, because it can cost more later.

A worked example

Example

A first year self employed bill

Sara became self employed and her first tax bill came to £3,000. Because the bill was over £1,000 and her tax was not collected at source, she also had to make payments on account towards her next year, each normally half of the £3,000, so £1,500 each. Her 31 January statement therefore showed the £3,000 balancing payment plus the first payment on account of £1,500, a total of £4,500 due in January. A second payment on account of £1,500 was then due by 31 July. In effect she was paying around one and a half years of tax across the two dates. Believing her income would be similar next year, she did not reduce the payments. Had she expected a clear fall, she could have applied to reduce them, taking care not to cut them too far and trigger interest on a shortfall.

Understanding the three parts in advance is the key to avoiding a nasty surprise, and to setting money aside in good time.

When to speak to an accountant

If your income is steady and you can budget for the two dates, you may simply need to plan ahead. It is worth speaking to an accountant when you are unsure how your payments on account were worked out, when your income is changing, or when you are weighing up whether to reduce them.

An accountant can confirm the right figures, advise on a safe reduction if your income is genuinely falling, and help you plan your cash flow so neither the January nor the July payment catches you out. At TaxTune we help people understand exactly what they owe and why. If you would like a clear picture, you can book a call or get a fixed fee quote. A little planning now can save a great deal of stress later.

In short

Payments on account are advance payments towards next year's tax, which is why your January bill can feel surprisingly large, but they can be managed.

Frequently asked questions

Why is my January tax bill so much higher than I expected?
It is usually because your bill includes payments on account, which are advance payments towards next year's tax. Your January statement can include the balancing payment for the year just gone plus the first payment on account for the new year. In a first year this can mean paying around one and a half years of tax at once.
How are payments on account calculated?
Each payment on account is normally half of your previous year's tax bill. There are two, the first due by 31 January and the second by 31 July. They are required if your last bill was over £1,000 and less than 80 percent of your tax was collected at source. Because they are based on last year, they may not match this year's actual income.
Can I reduce my payments on account?
Yes. If your income is going to fall, you can apply to reduce your payments on account so you do not pay more than you will owe. The important caution is that if you reduce them too far and end up owing more than you paid, HMRC charge interest on the shortfall. Base any reduction on a realistic estimate of your income.
When are payments on account due?
The first payment on account is due by 31 January, alongside any balancing payment for the previous year. The second payment on account is due by 31 July. It is easy to forget the July payment once January is behind you, so it helps to note it in your diary and set money aside in good time.
Do I have to make payments on account at all?
Not everyone does. You are required to make them only if your last Self Assessment bill was over £1,000 and less than 80 percent of your tax was collected at source. If most of your tax is already taken through PAYE, you may not have to make them. Your statement will show whether they apply to you.