Payments on account — why your January bill looks doubled

Updated: 14/07/2026 · 6 min read

Payments on account are advances towards NEXT year’s tax: two instalments of 50% of last year’s bill, due 31 January and 31 July. They apply when your bill exceeds £1,000 and less than 80% of your tax was collected at source. That is why the first “real” January stings: you pay the whole of last year plus half of next year at once.

The mechanics, with numbers

Your 2025/26 bill comes to £4,000. On 31 January 2027 you pay £4,000 (balancing payment) + £2,000 (first payment on account for 2026/27) = £6,000. On 31 July 2027: another £2,000. Next January, if 2026/27 also comes to £4,000, your advances already cover it — you pay only the new first instalment.

Who does NOT pay them

Tax bill under £1,000
80%+ of tax collected at source (e.g. a substantial PAYE job alongside a small trade)
CIS subcontractors often escape them — CIS deductions count as tax collected at source

Reducing them — carefully

If you genuinely expect a leaner year, you can apply to reduce payments on account (in the return or via form SA303). Over-reduce and HMRC charges interest on the shortfall. Base it on forecasts, not hope.

How not to get caught out

Put 25–30% of profit aside monthly in a separate tax pot
File early (autumn) — you will know January’s number months ahead
Keep expenses captured all year: lower profit → lower bill → lower advances
Diarise 31 July — the instalment everyone forgets

Every receipt captured, categorised and audit-ready.

Snap a photo or forward the email — Reclaim Day reads the vendor, amounts, VAT and date for you.

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Frequently asked questions

Why am I paying 150% of my tax in January?+

Because the balancing payment for last year lands together with the first 50% advance for the next. It is a one-off effect of entering the system — instalments roll after that.

Are payments on account extra tax?+

No — they prepay next year’s bill and are deducted from it. Any excess is refunded or offset.

How do I reduce payments on account?+

Claim a reduction in your return or via SA303 when you genuinely expect lower income. Undershoot and interest applies to the difference.

I work under CIS — will I pay them?+

Often not: CIS deductions count as tax at source, so the “less than 80% at source” condition usually fails and no advances are due.

This guide is general information, not tax advice. Rules and figures change — check gov.uk (HMRC) for current rates, and speak to an accountant about your situation.