What are payments on account and why is my tax bill higher than expected?

Payments on account are two advance instalments towards next year's tax bill, each half of this year's Self Assessment bill. They are due on 31 January and 31 July and apply if your bill is £1,000 or more and under 80% of your tax was collected at source. That is why January feels like paying twice.

Why the first bill is so big

The 31 January payment covers two things at once: the balancing payment for the year that has just ended, and the first payment on account for the year now running. The second instalment follows on 31 July.

Worked example

Can you reduce them?

Yes. If you expect a lower bill, you can reduce your payments on account in your HMRC online account or on form SA303. If you reduce them too far, HMRC charges interest on the shortfall. Reduce only on a supportable profit estimate.

When they apply

You must make payments on account unless your last bill was under £1,000, or you paid more than 80% of it through tax deducted at source, such as PAYE.

What to do

1. Work out your likely bill early and set cash aside every month.
2. Diarise 31 January and 31 July.
3. If profits fall, ask us to check a reduction before January.
4. If profits rise, expect a balancing payment on top.

Common mistakes

• Treating the first bill as a one-off.
• Forgetting the 31 July instalment.
• Reducing payments on account without a profit forecast.

Sources: GOV.UK: payments on account