Why Is My Second Payment on Account Higher Than Expected

At Towerstone Accountants we provide specialist personal tax services, for self employed, and individuals across the UK. This article has been written to explain Why is my second payment on account higher than expected, in clear practical terms, so you understand how personal tax and Self Assessment rules apply in real situations. Our aim is to help you stay compliant, avoid costly mistakes, and make confident tax decisions.

This is one of the most confusing and frustrating moments people experience with Self Assessment. You look at your tax calculation you brace yourself for the January bill and then July arrives with another demand that feels far higher than it should be. I regularly hear people say it feels like HMRC is charging them twice or that something must be wrong.

In most cases nothing is wrong with the calculation but something is missing from the understanding. Payments on account are logical once you know how they work but until that point they can feel unfair opaque and badly timed.

In this article I want to explain clearly why your second payment on account can feel higher than expected what HMRC is actually asking you to pay and how this fits into the wider tax picture. This is based on real conversations I have every year with sole traders landlords and directors who are doing the right thing but still feel caught out.

What Payments on Account Are Actually For

Payments on account are advance payments towards your next tax bill. They are not penalties and they are not extra tax. They are HMRC asking you to pay tax earlier based on what you owed last year.

If your tax bill for the year exceeded a certain threshold and most of it was not collected through PAYE HMRC assumes you will owe a similar amount again. To spread the burden they ask you to pay it in two instalments.

These instalments are:

• The first payment on account due on 31 January

• The second payment on account due on 31 July

Each payment is usually 50 percent of your previous year’s income tax and Class 4 National Insurance bill.

This is where confusion starts because these payments relate to a future tax year not the one you have just filed.

Why the Second Payment Feels Worse Than the First

Psychologically the second payment is harder because it arrives with no tax return deadline attached to it. There is no form to file just a bill to pay. By July many people have mentally moved on from tax and the payment feels unexpected even though it was signposted in January.

There are also practical reasons it feels worse.

By the time July arrives you may have:

• Already paid a large January bill

• Assumed the worst was over

• Used cash flow for other purposes

• Forgotten that the July payment was coming

Unlike January there is no balancing payment in July just the payment on account. This makes it feel less connected to income and more like a standalone charge.

Why It Can Be Higher Than You Expected

There are several reasons your second payment on account can feel higher than expected even when it is technically correct.

The most common reason is that the January payment already included a payment on account for the same year. People often focus on the total January amount without breaking it down.

For example your January bill may have included:

• The balancing payment for last year

• Plus the first payment on account for this year

By July you are then paying:

• The second payment on account for this year

If you mentally treated January as clearing everything the July bill feels like an extra charge when it is not.

Income Growth in the Previous Year

Payments on account are based on the most recent completed tax year. If that year was particularly good your payments on account will reflect that.

This often happens when:

• A business has a strong year

• Rental income increases

• A one off contract boosts profit

• Dividends are higher than usual

HMRC does not know whether that income level will continue. It simply assumes it might.

If your income has since dropped the payments can feel disproportionate even though they are based on historic data.

National Insurance Adds to the Figure

Another reason the payments feel higher is that they usually include Class 4 National Insurance as well as income tax.

Many people mentally estimate tax using income tax rates alone and forget about National Insurance entirely. When it is included in the payment on account the number feels inflated.

This is especially common for self employed individuals who are new to Self Assessment.

Student Loans and Other Charges Are Separate

It is important to note that student loan repayments and some other charges are not included in payments on account.

This means the January bill often feels very high because it includes everything whereas the July bill only includes part of the picture. The mismatch in structure adds to the confusion.

Why HMRC Does Not Smooth This Automatically

A common question I am asked is why HMRC does not simply adjust payments on account in real time.

The answer is that HMRC relies on completed tax returns not projections. It cannot know your current year income until the year has ended and the return is filed.

Payments on account are therefore a blunt tool. They are designed to reduce underpayment overall not to perfectly match your circumstances.

When a Reduction Might Be Appropriate

If your income has genuinely fallen and you expect your tax bill to be lower you may be able to reduce your payments on account.

This must be done carefully.

Reducing payments is appropriate when:

• Your profit has dropped significantly

• Income sources have ended

• One off income inflated the prior year

• Circumstances have changed materially

However if you reduce payments too far and the final bill is higher HMRC can charge interest and penalties on the underpaid amount.

This is why reductions should be based on realistic figures not optimism.

Why People Feel Like They Are Being Taxed Twice

This is one of the strongest emotional reactions I see and it is understandable.

In reality what is happening is this:

• You are finishing paying tax for last year

• While starting to pay tax for this year

There is overlap but no duplication.

Once you get past the first full cycle payments on account usually stabilise and the system feels more predictable. The first time through is the hardest.

The Cash Flow Impact

Even when the maths makes sense the cash flow impact can still be severe.

Two large payments in January and July can put pressure on businesses and households especially where income is seasonal.

This is why planning matters. Payments on account should be treated as a known future obligation not a surprise.

How Monthly Saving Changes Everything

The people who struggle least with payments on account are those who set aside tax monthly.

When money is saved steadily:

• January is manageable

• July is expected

• Cash flow remains stable

When tax is ignored until deadlines payments on account feel like punishment rather than timing.

How an Accountant Helps With This

When I review payments on account with clients my role is to:

• Explain exactly what the payments relate to

• Confirm whether the amounts are correct

• Assess whether a reduction is justified

• Help plan cash flow around known dates

Often the biggest benefit is simply removing the uncertainty. Once people understand what they are paying and why the anxiety drops significantly.

What Happens in the Long Term

Payments on account are not permanent penalties. Over time they usually settle into a rhythm.

If your income is stable:

• Payments on account roughly match your final bill

• Balancing payments become small

• Planning becomes easier

If income fluctuates:

• Payments may feel misaligned

• Regular review becomes important

Either way understanding the mechanism makes it far less stressful.

Key takeaways

Your second payment on account feels higher than expected not because HMRC has suddenly changed the rules but because the system overlaps tax years in a way that is not intuitive.

Once you understand that you are paying part of next year’s tax early the picture becomes clearer. The charge is not extra. It is just earlier.

From my experience the frustration around payments on account comes from surprise not from the amounts themselves. With planning clarity and realistic expectations they become another manageable part of the tax year rather than a recurring shock.

You may also find our guidance on What is the payment on account system and how does it work, and How do I work out how much tax I owe, helpful when reviewing related personal tax questions. For a broader overview of Self Assessment deadlines, reporting, and obligations, you can visit our self assessment guidance hub.