Why first-time filers pay half as much again in January

If 2025/26 was your first year of self-employment or letting, the bill due on 31 January 2027 could be about one and a half times the tax you owe for that year. Nothing has gone wrong. That is how payments on account work, and they catch out many people filing for the first time.

Think of the designer who went freelance in spring 2025, or the teacher who started letting a flat in Croydon that year. Each will file a first return this winter.

What payments on account are

HMRC does not wait for a year to finish before it starts collecting tax on the next one. Once you are in Self Assessment, it asks for advance payments towards the following year's bill.

Each is usually half of the tax you owed for the previous year, including Class 4 National Insurance if you are self-employed. They are due by midnight on 31 January and 31 July. Anything still owed is collected as a balancing payment the following 31 January.

In a settled year this simply spreads the bill. In your first year, two bills land on the same day.

Why the first January costs more

On your first 31 January you pay all the tax for the year just gone, because nothing was paid in advance. On the same day you make the first payment on account towards the current year. gov.uk's own example is a £3,000 bill plus a £1,500 first payment on account: £4,500 due on one date.

Illustration, not a real client. Maya went freelance as a designer in Hackney in May 2025 and had no other income. Her profit for 2025/26 was £30,000.

• Income Tax: 20 per cent on the £17,430 above the £12,570 Personal Allowance, which is £3,486.

• Class 4 National Insurance: 6 per cent on the same £17,430, which is £1,045.80.

• Total for 2025/26: £4,531.80.

By 31 January 2027 she owes that £4,531.80 plus a first payment on account of £2,265.90 towards 2026/27: £6,797.70. A second £2,265.90 follows on 31 July 2027. If Maya saved only for the tax she thought she owed, she is £2,265.90 short in January. That gap is why the first tax bill is so high for so many people.

Who does not have to make them

You do not have to make payments on account if either applies:

• the tax you owed for the last year was less than £1,000;

• more than 80 per cent of last year's tax was paid outside Self Assessment, for example through your tax code.

The second matters for anyone in London with a salaried job and a small side income. If more than 80 per cent of last year's tax came off your payslip, there are no payments on account and January brings only the bill for the year just gone.

If this year will be lower

Payments on account are based on last year. If this year's profit will be lower, perhaps because a contract ended or you went back into employment, you can ask HMRC to reduce them, online through your Self Assessment account or by post on form SA303.

Be realistic rather than hopeful. If you reduce them and the final bill comes out higher, HMRC charges interest on the difference. Its late payment interest rate was 7.75 per cent a year at the time of writing, 9 October 2026.

What to do before January

1. Work out last year's figure now. You can file online any time up to 31 January 2027 (paper returns are due by 31 October 2026), and filing in October or November gives you the number while there is still time to plan.

2. Add half again. Plan for one and a half times your 2025/26 tax in January, unless an exception applies.

3. Put 31 July in the diary. It is the payment people forget, because no return comes with it.

4. If you also have a job taxed through PAYE, note 30 December 2026. If you owe less than £3,000 and file online by then, HMRC can usually collect it through your tax code instead.

5. If you started last year and have not registered, do it now. The deadline was 5 October 2026, and registering late without paying in full by 31 January can bring a failure to notify penalty.

Tax paid late runs up interest, and the tax for the year itself attracts late payment penalties of 5 per cent of what is unpaid at 30 days, at 6 months and at 12 months. A one-page payments on account guide sets out the dates to put in the diary.

After the first January, payments on account become useful rather than alarming: the tax is split across two dates six months apart, and each balancing payment is only the difference. The first-year budget is 150 per cent, and the time to know it is before you file, not after.

About the author

Harvey Dhillon is the founder and CEO of Zmartly, a UK accountancy firm for small businesses. He grew up in West London and worked in finance roles in investment banking, wealth management and private equity, starting at Barclays, before leaving in 2020 to build the firm. He is a Chartered Management Accountant (ACMA, CGMA).

Featured photo by Vitaly Gariev on Unsplash.