Why Is My Second Payment on Account Higher Than Expected

If you are self employed or file a Self Assessment tax return, you may have noticed that your second payment on account is higher than you expected. This can be confusing, especially if your income has not changed or your profits have even gone down. The reason lies in how HMRC calculates advance tax payments. Understanding how payments on account work can help you plan better, avoid overpaying, and stay on top of your cash flow. This article explains why your second payment might be higher than expected and what you can do about it.

What are payments on account

Payments on account are advance payments towards your next tax bill. HMRC uses them to spread the cost of your Income Tax and Class 4 National Insurance contributions across the year.

If your total tax bill is more than £1,000 and less than 80% of your tax has been collected at source (for example, through PAYE), HMRC will require you to make payments on account.

These payments are designed to stop taxpayers facing one large bill after filing their return. Instead, you make two instalments in advance:

  • First payment: Due by 31 January.

  • Second payment: Due by 31 July.

Each payment is normally half of your previous year’s tax bill.

For example, if your 2023–24 tax bill was £6,000, HMRC will ask for £3,000 in January 2025 and another £3,000 in July 2025 towards your 2024–25 tax year.

Why your second payment may be higher than expected

If your second payment seems higher than last year or higher than you anticipated, there are several possible explanations.

1. You had a balancing payment added in January

When you file your tax return, you must pay any balancing payment for the previous tax year at the same time as your first payment on account for the new year.

This means that your January payment can often include two parts:

  • The remaining balance for the tax year just ended.

  • The first advance payment for the next year.

As a result, when you reach July, the second payment can appear larger because you might not have realised that part of your January bill included future tax.

2. HMRC based payments on a higher previous year’s profit

Payments on account are calculated using your last completed tax return, not your current year’s figures.

If your income or profit was higher last year, HMRC will assume it will be the same this year and base your payments on that amount.

For example, if you earned £40,000 in 2023–24 but only £25,000 in 2024–25, your payments on account will still be based on £40,000 until you file your next return.

This can make your second payment seem excessive if your income has dropped.

3. You had additional income included in your last return

If you added extra income to your last Self Assessment (such as rental income, capital gains, or dividends), HMRC will include this in your total tax liability and use it to calculate your payments on account.

However, payments on account only apply to Income Tax and Class 4 National Insurance from self employment. They do not include tax on savings, dividends, or capital gains.

If these income types were mistakenly factored into the calculation, your payments could be higher than they should be.

4. Your tax reliefs or allowances changed

If your personal allowance or tax reliefs have been reduced, your tax bill from the previous year may have been higher than usual, increasing your payments on account.

For instance, changes to pension contributions, marriage allowance, or expenses can affect the total tax due and influence future instalments.

5. HMRC updated your figures after a late return or correction

If you filed your return late or amended it, HMRC may have recalculated your payments on account based on the new information. This can lead to an unexpected increase in your second payment if they adjusted the first instalment retrospectively.

6. You missed a payment on account

If you missed or underpaid your first payment on account in January, HMRC will add the shortfall to your July instalment.

For example, if your January payment should have been £3,000 but you only paid £2,000, HMRC will add the remaining £1,000 to your July payment, making it £4,000 instead of £3,000.

What to do if your second payment seems too high

If you believe your second payment on account is too high, you can ask HMRC to reduce it.

How to reduce payments on account

You can request a reduction by:

  • Logging into your HMRC online account.

  • Selecting “Reduce payments on account” under Self Assessment.

  • Entering your estimated income for the current tax year.

HMRC will then recalculate your payments based on your estimate.

Alternatively, your accountant can make the request on your behalf using their agent account.

Be careful when reducing payments

Only reduce your payments if you are confident your income will be lower this year. If you underestimate and end up owing more tax, HMRC will charge interest on the shortfall.

It is safer to slightly overpay and receive a refund later than to underpay and face extra charges.

How to check your payments on account

You can view your payment history and future instalments by logging into your Personal Tax Account. This will show:

  • Payments made to date.

  • Outstanding balances.

  • The due dates for upcoming payments.

If your accountant manages your tax affairs, they can confirm whether your payment schedule is correct.

What happens if you pay late

If you do not pay your second instalment by 31 July, HMRC will start charging interest from 1 August on the overdue amount.

If the payment remains unpaid for more than 30 days, you may also face a 5% late payment penalty.

The longer the delay, the more the interest and penalties will build up, so it is best to pay as soon as possible or arrange a Time to Pay plan with HMRC.

How an accountant can help

An accountant can:

  • Check whether your payments on account are correct.

  • Request a reduction if your income has dropped.

  • Help you plan for upcoming tax liabilities.

  • Negotiate payment arrangements with HMRC if you are struggling to pay.

Their guidance can save you money by ensuring you do not overpay and by helping you avoid unnecessary penalties or interest.

Final thoughts

A higher second payment on account can be surprising, but it usually reflects HMRC’s system of estimating your future tax based on past income. It does not necessarily mean you owe more tax overall.

If your income has fallen, or if you think HMRC’s figures are wrong, you can request a reduction. The key is to act early, keep accurate records, and seek professional advice if needed.

Understanding how payments on account work gives you more control over your finances and helps you avoid unexpected bills at tax time.