Hamster blog

What are payments on account, and why is my first tax bill so big?

Published 5 October 2026 · Figures are for the 2026–27 tax year

The short version

Most side hustlers get their first Self Assessment bill and find it is bigger than the tax they worked out. That is not a mistake. It is payments on account: HMRC collecting part of next year's tax in advance.

Once you are in the system, you pay tax roughly as you go: half of an estimated bill in January, half in July, then a top-up or refund the following January.

Who has to make them

You make payments on account unless either:

• your last Self Assessment bill was less than £1,000, or
• you paid more than 80% of all the tax you owed at source, for example through PAYE on your wages

Plenty of people with a small side hustle and a full-time job fall under one of these and never see a payment on account. Once your side-hustle tax passes £1,000, or the side hustle becomes your main income, they start.

How they are worked out

Each payment is normally half of last year's Self Assessment bill. They cover Income Tax and Class 4 National Insurance. Student loan repayments and Capital Gains Tax are not included, and are paid with the balancing payment instead.

There are two payments a year:

• 31 January, in the tax year you are paying towards
• 31 July, after that tax year ends

The following January you file your return. If the two payments were less than your actual bill, you pay the difference, known as the balancing payment. If they were more, you get the extra back or knocked off what you owe.

Why the first bill is so big

The first January has three things landing at once:

1. your full bill for the tax year that has just ended, because you have paid nothing towards it yet
2. the first payment on account for the tax year you are now in
3. no earlier payments to take off

A worked example

Maya started selling candles on Etsy in 2025–26 alongside a £30,000 job. Her profit was £8,000, all taxed at 20%, so her bill for the year is £1,600.

• 31 January 2027: £1,600 for 2025–26, plus a first payment on account for 2026–27 of £800. Total: £2,400.
• 31 July 2027: second payment on account of £800.
• 31 January 2028: her 2026–27 bill comes in at £2,000. She has paid £1,600 towards it, so the balancing payment is £400, plus a first payment on account for 2027–28 of £1,000.

After the first year it settles into a rhythm. It is the first January that catches people out, because they saved 20% of their profit and needed 30%.

If your income is falling

Payments on account assume this year will look like last year. If you know you will earn less, for example because you have stopped trading or cut back, you can ask HMRC to reduce them in your online account or on form SA303.

Be careful not to reduce them too far. If your actual bill turns out higher, you pay interest on the difference from the original due dates.

If your income is rising, nothing happens automatically. The balancing payment the following January catches up, so it is worth setting aside for that as you go.

Missing a payment

Late payments on account are charged interest. The bigger late payment penalties, 5% of the unpaid tax at 30 days, 6 months and 12 months, apply to the balancing payment, not to payments on account, but any payment on account still unpaid by then becomes part of it. If you cannot pay, contact HMRC before the deadline about a payment plan.

Keeping track

Payments on account are much less painful when you have been saving the right amount all year. Hamster is a free Android app that estimates your tax and National Insurance every time you log earnings and shows it next to what you have set aside, so the January total is one you saw coming. For a quick guide to the right percentage, see how much to set aside for tax.

This is general information, not personal tax advice. Rules and rates change — check the linked GOV.UK pages or speak to an accountant about your own situation.