Payments on Account: The Self-Assessment Trap That Catches New Freelancers
Payments on account can double your first Self Assessment bill and catch new freelancers off guard. This guide explains what payments on account are, how they're calculated, and how to plan for them so your January tax bill never surprises you.
Nothing shocks a new freelancer quite like their first Self Assessment bill being bigger than expected — often nearly double. The culprit is usually payments on account, a rule that catches thousands of self-employed people off guard every January. This guide explains what payments on account are, how HMRC calculates them, and how to budget so they never blindside you.
If you're just getting to grips with self-employment, start with our guide to how much tax sole traders pay, then use the UK Self-Employed Tax Calculator to estimate your bill.
What are payments on account?
Payments on account are advance payments towards your next tax bill. HMRC assumes that if you owed tax this year, you'll owe a similar amount next year — so it asks you to pay some of it in advance, in two instalments. The idea is to spread the cost and stop people falling behind. In practice, it means your first year of self-employment can involve paying roughly one and a half times your actual bill.
How payments on account are calculated
Each payment on account is 50% of your previous year's tax bill. They're due in two instalments:
- 31 January — your balancing payment for the tax year just ended, plus your first payment on account for the current year.
- 31 July — your second payment on account.
Payments on account apply once your annual Self Assessment bill exceeds £1,000 (and you don't already pay most of your tax at source).
Worked example: why your first bill feels doubled
Suppose your first year of freelancing produces a tax bill of £5,000. Here's what happens on 31 January:
- Balancing payment for the year just ended: £5,000
- First payment on account (50% of £5,000) towards next year: £2,500
- Total due on 31 January: £7,500
Then on 31 July you pay a second £2,500 payment on account. So in your first year you hand over £10,000 across the two dates — even though your actual bill was £5,000. The following year, those advance payments are credited, so it evens out — but the first year hurts if you haven't planned for it.
How to budget for payments on account
The safest approach is to set aside tax as you earn, treating payments on account as part of the plan rather than a surprise. If you already put aside 25–30% of profit (as we recommend in our self-employed tax guide), increase that buffer in your first profitable year so you can cover the extra advance payment. Keeping the money in a separate savings account also means it can earn a little interest — see how that adds up in our guide to compound interest.
Can you reduce your payments on account?
Yes. If you know your income will be lower next year — for example you're winding down, taking a break, or returning to employment — you can apply to reduce your payments on account. But be careful: if you reduce them too far and end up owing more, HMRC charges interest on the shortfall. Only reduce them if you're confident your income really will fall.
Frequently asked questions
What are payments on account?
They are advance payments towards your next Self Assessment tax bill, each equal to 50% of your previous year's tax. They're due on 31 January and 31 July and apply once your annual bill exceeds £1,000.
Why is my first Self Assessment bill so high?
Because on 31 January you pay both your balancing payment for the year just ended and your first payment on account towards the next year. This can make your first bill around 150% of your actual tax owed.
Who has to make payments on account?
Anyone whose Self Assessment bill is over £1,000 and who doesn't already pay most of their tax at source. Most full-time self-employed people fall into this category.
Can I reduce my payments on account?
Yes, if you expect your income to fall. You can apply to reduce them through your Self Assessment account, but if you underestimate and owe more, HMRC will charge interest on the difference.
When are payments on account due?
The first is due on 31 January (alongside your balancing payment) and the second on 31 July. Together they pre-pay your estimated tax for the current tax year.
This article was last reviewed for the 2025/26 tax year. Figures are for guidance only — always verify with HMRC or a qualified accountant.