Payments on account, explained simply
Why HMRC asks for 150% of your first bill, how the July payment works, and when you can legitimately reduce it.
Payments on account are the least-understood mechanism in Self Assessment and the source of most first-year shocks. The idea: employees pay tax as they earn (PAYE); the self-employed pay in arrears, so HMRC collects advance instalments against the current year.
The mechanics
If your Self Assessment bill exceeds £1,000 (and less than 80% of your tax was collected at source), HMRC asks for two advance payments on the next year: 50% of this year's bill on 31 January, 50% on 31 July. Each payment is an estimate that assumes next year looks like this year.
The infamous first-year effect: your first £4,000 bill arrives as £6,000 on 31 January (the bill plus the first instalment) and another £2,000 in July. Nothing extra is being taken — it's timing — but nobody warns you, so it feels like a raid.
When the estimate is wrong
Next January, actual figures replace the estimate: paid too much and the excess offsets or refunds; too little and a balancing payment tops it up. If you already know income has fallen — lost a contract, gone part-time — you can elect to reduce payments on account to a realistic figure. That's legitimate and takes minutes. Reduce them below what turns out to be due, though, and HMRC charges interest on the shortfall, so honest estimating beats optimism.
Living with them
Treat payments on account as your tax being collected almost in real time: set aside 25–30% of profit monthly and the instalments stop being events. The July payment is the one to diary — it arrives mid-summer, six months from any filing activity, and is the most-missed payment date in the system.
General guidance, not personal advice — rules change and circumstances differ. See our advice disclaimer.