Why Is My Self Assessment Payment on Account So High?

Key takeaways

• A 2025 to 2026 Self Assessment bill of £5,946 becomes £8,919 due on 31 January 2027, because the full bill arrives alongside a first payment on account of £2,973.
• Year one costs 150% of the tax assessed, because the balancing payment and the first instalment land on the same date only once.
• On a £40,000 salary, payments on account start once untaxed profit passes about £6,858, the point where PAYE stops covering 80% of your total tax.
• Late filing penalties reach £1,600 after 12 months, which on a £1,600 tax bill is 100% of the tax itself.
• HMRC charges late payment interest at 7.75% from 9 January 2026, roughly £691 across a year on an unpaid £8,919.

What is actually due on 31 January 2027

You filed your first tax return, the calculation came back at a figure you were ready for, and the statement is asking for half as much again. That isn't a mistake and it isn't a penalty. It's a payment on account.

Self Assessment settles the tax year that has ended and, on the same date, takes the first instalment towards the year you're already most of the way through. On a bill of £5,946 for 2025 to 2026, the balancing payment is £5,946 and the first payment on account towards 2026 to 2027 is half of it, £2,973. The total asked for by 31 January 2027 is £8,919.

GOV.UK states the rule in one line: "Each payment is half of the tax you owed last year." The instalments "are due by midnight on 31 January and 31 July". Section 59A of the Taxes Management Act 1970 puts it in statute: each one "shall be of an amount equal to 50 per cent. of the relevant amount". The relevant amount is the figure by which your assessment "exceeds the amount of any income tax which has been deducted at source".

So it's the same liability, collected sooner. What makes the first year different is that the two collections overlap exactly once, on your first 31 January, and that overlap is never repeated at the same size.

Why a first payment on account in Self Assessment makes year one cost 150%

Here's the arithmetic on one reader. Take an employee on a £40,000 salary with a correct PAYE code, who in 2025 to 2026 had untaxed income for the first time from letting a property.

In that year the "standard Personal Allowance from 6 April 2025 to 5 April 2026 was £12,570". Basic rate at 20% covered "£0 to £50,270" of taxable income above the allowance, and higher rate at 40% started above £50,270. PAYE has already collected £5,486 on the £27,430 of taxable salary. That leaves £10,270 of basic rate band unused, so untaxed profit is taxed at 20% until it fills that band and at 40% after it.

The same person, with four different amounts of untaxed profit:

At £20,000 of profit, £10,270 is taxed at 20% and £9,730 at 40%. At £40,000, the higher rate slice is £29,730. The chart plots the January column, and the step between the first two rows is the part nobody gets warned about. Untaxed profit rises 60%, from £5,000 to £8,000. The January demand rises 140%, from £1,000 to £2,400. No rate changed. The collection schedule did.

Two tests decide whether HMRC asks for payments on account

Not everybody gets them. GOV.UK: "You must make these 2 payments, unless either: the amount of tax you owed last year was less than £1,000" or "last year you paid more than 80% of the tax you owed outside of Self Assessment (for example through your tax code or because your bank had already deducted interest on your savings)". Either exemption on its own is enough.

For this reader, PAYE collects £5,486 whatever the side income does. That's 84.58% of total tax when the untaxed profit is £5,000, and 77.42% when it's £8,000. The 80% line sits between them, at untaxed profit of about £6,858. Below that figure, the payment on account that HMRC would otherwise ask for doesn't arise at all. Above it, the full 150% year arrives.

The threshold is personal rather than general. It moves with how much of your tax PAYE already takes, so a bigger salary pushes the £6,858 crossover higher and a smaller one pulls it down. The £1,000 test is the cruder of the two, and in the £5,000 row it does nothing: the tax is exactly £1,000, which is not less than £1,000, so the 80% test is the one doing the work. Our table of UK investment tax rates carries the bands for the current year.

The July instalment, and why year two looks cheaper than it is

The second payment on account falls on 31 July. At £20,000 of profit that's another £2,973, taking the first year to £11,892 across the two 2027 dates. At £8,000 it's £3,200 for the year, and at £40,000 it's £27,892.

Year two is where the pattern settles down. If 2026 to 2027 produces the same £5,946 of tax, the two instalments have already covered it, and the following January brings only the first instalment for the year after. GOV.UK's own example says it plainly: "If your total tax for the year is £3,000, the only payment you will need to make by 31 January 2026 is your first payment on account for the following tax year."

If the untaxed income grew, a balancing payment reappears on top of the instalment. If it shrank, the overpayment comes back. The 150% year happens once, at the front. After that, Self Assessment is permanently collecting against a year that hasn't finished.

Class 4 National Insurance rides along, capital gains tax does not

A landlord and a side-business owner get different bills out of the same profit figure. Payments on account are "payments towards your next tax bill (including Class 4 National Insurance if you're self-employed)". For 2026 to 2027 Class 4 runs at "6% on profits over £12,570 up to £50,270" and "2% on profits over £50,270", so a sole trader's instalment carries National Insurance as well as income tax. The filing trigger for a sole trader is earning "more than £1,000 (before taking off anything you can claim tax relief on)".

Rental profit is treated differently. GOV.UK describes Class 2 contributions for a landlord as voluntary, available if you count as "gainfully employed" for National Insurance, rather than something Self Assessment collects as a matter of course. The first £1,000 of rental income is tax-free as the property allowance. What counts as taxable rental profit is its own question, and the Section 24 finance cost restriction is the reason a mortgaged let can show taxable profit on a cash loss.

Capital gains run the other way round. The balancing payment "will also include anything you owe for capital gains or student loans (if you're self-employed)". But section 59A is triggered only where a person is assessed "to income tax under section 9 of this Act in any amount", so a capital gain, which is not income tax, doesn't feed next year's instalments. Someone who sold a property in 2025 to 2026 can therefore face a large balancing payment with a small instalment behind it.

Reducing the instalments is allowed, and getting it wrong has its own price

If next year's tax is genuinely lower, the instalments can be cut. GOV.UK: "If you know the tax you owe is going to be lower than last year, you can ask HM Revenue and Customs (HMRC) to reduce your payments on account." It's done in the online account or by posting form SA303, and HMRC needs "the amount you expect to make" to recalculate.

Two things sit behind that. The first is interest: "If you reduce your payments on account and your tax bill is higher than expected, you'll be charged interest on the difference." The second is the statute. Section 59A(6) says a taxpayer who "fraudulently or negligently makes any incorrect statement in connection with a claim" is "liable to a penalty not exceeding the difference between" the correct instalment and the one actually paid. A reduction claim is a forecast of the year ahead, and the law prices a careless one.

There's also a quieter route that only works on small bills. A Self Assessment bill where "you owe less than £3,000 on your tax bill" can be collected through next year's PAYE code, provided the online return arrives by "11:59pm on 30 December 2026". That's a month before the Self Assessment deadline of 31 January 2027, and it's the date most people miss without ever knowing it existed.

The Self Assessment penalties ladder, and where it overtakes the tax

Filing late and paying late are priced separately, and both ladders can run at the same time.

For a late return: "an initial £100 penalty", then "after 3 months, additional daily penalties of £10 per day, up to a maximum of £900", then "after 6 months, a further penalty of 5% of the tax due or £300, whichever is greater", then "after 12 months, another 5% or £300 charge, whichever is greater".

Read that against a small bill and it inverts. On £1,600 of tax, 5% is below the £300 floor, so both of the later charges land at £300. The ladder totals £1,600 after a year, which is 100% of the tax. On £5,946 of tax the same ladder is still £1,600, or 26.9%. On £13,946 it's £2,394.60, or 17.2%. Self Assessment penalties are regressive, and the smallest first-year bills carry the heaviest proportional charge.

Paying late runs its own ladder, with penalties "of 5% of the tax unpaid" at 30 days, at 6 months and at 12 months. Interest runs on top of all of it. HMRC publishes the late payment interest rate as "7.75% from 9 January 2026", set at "base rate plus 4% from 6 April 2025 (was plus 2.5% on or before 5 April 2025)". On the £8,919 in the middle row, a full year unpaid is about £691 of interest before a single penalty. Penalties can be appealed: "If you have a reasonable excuse, you can appeal against a penalty."

The objection worth taking seriously: none of this is extra tax

There's a strong case that the January figure is not a shock at all. Over your whole time in Self Assessment, payments on account collect what you owe and nothing more. Every instalment is credited against a real liability, and an over-collection is repaid. The 150% year is a cash flow event, not a tax rise, and "paying twice" is the wrong description of it.

That objection is right about the total and wrong about the moment. The £20,000 landlord hands over £11,892 across the two 2027 dates, which is 59.5% of the profit the year produced. Nothing in the design requires that profit still to be sitting in an account in January, and for a let it rarely is, because agents, repairs and void months are paid as they fall. The money is owed. The question is whether it's still there. HMRC's answers are the reduction claim and a payment plan, since "if you cannot pay your tax bill in full, you may be able to set up a payment plan to pay it in instalments". Both work best for someone who saw the January figure coming.

What this arithmetic cannot tell you

The four rows are one salary, one tax year and one kind of untaxed income, so take them as a method rather than a lookup.

Change the salary and the 80% crossover moves with it. Make the untaxed income dividends or savings interest instead of rent and different rates and allowances apply, which changes the tax and therefore every instalment in the table. This sample is deliberately narrow.

The bands quoted are the 2025 to 2026 ones, because that's the year being settled on 31 January 2027. GOV.UK also notes that "income tax bands are different if you live in Scotland", where the shape of the arithmetic holds and the numbers don't.

The interest figure is the rate published for 9 January 2026. It's set at base rate plus 4%, so it moves when the Bank of England moves, and £691 is what a year at the current rate costs rather than a forecast of what it would cost.

The penalty ladder assumes no reasonable excuse was accepted and nothing at all was paid, which is the worst case and not the usual one. And the largest limitation is one the table can't see: whether your tax code was right. The whole 80% test turns on how much PAYE actually collected.

What would change the conclusion

The instalment rests on an assumption, which is that last year predicts this one. Section 59A simply halves the year that has gone. For a landlord whose first year contained a refurbishment, or a side business whose first year was its best, that assumption is the weakest joint in the machine, and the reduction claim is the only place the law invites you to argue with it.

Quarterly reporting is the thing that could change the shape rather than the size. Making Tax Digital for landlords adds updates "every 3 months" to the cycle. HMRC is explicit that it changes the reporting and not the payment: under it you still "submit one tax return every tax year" and "pay your tax bill as you do now", and "you must still do both by 31 January following the end of the tax year". The instalment survives the reform untouched. Payments on account are a guess about the present built from the past, and the case for guessing weakens as the reporting moves closer to real time.

The other thing to watch is the rates themselves. The 20% and 40% slices in the table are what make £20,000 of profit cost £5,946 rather than £4,000, and the instalment is half of whatever that number turns out to be. Rental profit faces its own schedule of changes, set out in the guide to landlord tax. The deadline is fixed at 31 January. The figure attached to it is not.