Nobody warns you about this one, and it bites hardest in your second year of trading.

How they work

Say your tax bill for 2025/26 is £6,000. On 31 January 2027 you pay:

• the £6,000 for 2025/26
• the first payment on account for 2026/27: £3,000, half of last year’s bill

That is £9,000 on one day. Then £3,000 more on 31 July 2027.

When your 2026/27 return is done, those two £3,000 payments are set against the real bill. If the bill comes to £7,000, you pay the £1,000 difference as a balancing payment on 31 January 2028, alongside the first payment on account for the year after. If the bill is £5,000, HMRC owes you £1,000 back.

Who does not have to pay them

Two escape hatches. You skip payments on account if your last Self Assessment bill was under £1,000, or if more than 80% of your tax was already collected at source, for example through PAYE on a salary. Plenty of people with a day job and a side business fall into the second group.

Why the first January stings

Year one, you pay only the bill itself. Year two is when the advance payments start, so that single January takes the whole of year one’s tax plus half of it again. If you have a £6,000 bill and you have saved £6,000, you are £3,000 short.

The fix is boring and it works. Each month, put aside roughly a third of what you earn after expenses. That covers the tax, the Class 4 National Insurance, and the payments on account when they arrive.

If your income is falling

You can ask HMRC to reduce your payments on account, online or with form SA303. Use it when you genuinely expect a smaller bill. If you cut them too far, HMRC charges interest on the shortfall from the original due dates, so estimate honestly rather than hopefully.

Sources

All pages checked 20 October 2026.

• Payments on account: https://www.gov.uk/understand-self-assessment-bill/payments-on-account
• Self Assessment deadlines: https://www.gov.uk/self-assessment-tax-returns/deadlines

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