Payments on account explainer
Your first Self Assessment demand can look like 150% of the tax you owe. This shows exactly why, and what falls due in January and July.
Why the first bill is bigger
The demand appears too high because it covers two liabilities at once. First it settles the tax for the year that has just ended, called the balancing payment. Then, on the same date, HMRC asks for a first payment on account: an advance instalment worth half of that bill, put towards the year you are currently in. Add the full bill and the half and you get roughly 150% of one year's tax in a single January.
The other half follows on 31 July as a second payment on account. Both instalments are credited against next year's real bill, so you are not paying twice, you are paying ahead. The system only starts once your bill passes £1,000, and once it is running the January figure settles down because you have already paid instalments towards the year.
Worked example
Suppose your Self Assessment bill for the year is £7,132. On 31 January 2028 you pay that £7,132 balancing amount plus a £3,566 first payment on account, so £10,698 leaves your account. On 31 July 2028 you pay the second £3,566 instalment. Between the two dates you have handed over £14,264, which is your bill plus a full year paid in advance.
Common questions
Why is my tax bill 150% of what I expected?
Because the first bill bundles two things. You pay the full tax for the year just gone, then HMRC adds a first payment on account worth 50% of that towards next year. That is why the January demand is about 150% of one year's tax. A second 50% follows on 31 July.
What is a payment on account?
It is an advance instalment towards next year's tax, based on the assumption that you will earn something similar again. There are two, each 50% of your last bill, due 31 January and 31 July. They are credited against next year's actual bill.
When do payments on account apply?
When your Self Assessment bill is more than £1,000, unless more than 80% of your tax is already collected at source (for example through PAYE). Below £1,000 you pay only the balancing amount with no advance instalments.
Can I reduce my payments on account?
Yes, if you know your profit will be lower next year you can ask HMRC to reduce them. Be careful: if you reduce them too far and end up owing more, HMRC charges interest on the shortfall.
Does the second year settle down?
Yes. Once the system is running you have already paid two instalments towards the year, so the following January you only pay the balancing difference plus the next first instalment. The 150% shock is mainly a first-year problem.