Payments on Account at £40k Profit: January and July
Payments on account explained for £40,000 of self-employed profit: the first January bill, the July payment, and how to reduce them if profits fall.
Direct answer: On £40,000 of profit, the annual Self Assessment bill is about £7,132. Because the bill exceeds £1,000 and less than 80% of the tax is collected at source, payments on account apply: in the first year the January total is roughly £10,698 — the full bill plus a £3,566 advance — followed by £3,566 in July.
Assumptions: England, Wales or Northern Ireland; 2026/27 rates; profit after allowable expenses; standard Personal Allowance; no pension or student loan unless stated.
The calculated payments
| Payment | Due | Amount |
|---|---|---|
| Balancing payment for the year | 31 January | £7,132 |
| First payment on account | 31 January | £3,566 |
| Total due in the first January | 31 January | £10,698 |
| Second payment on account | 31 July | £3,566 |
How payments on account work
When a Self Assessment bill exceeds the threshold and less than 80% of the tax owed is collected at source — the norm for self-employment income — HMRC assumes next year will look the same and collects half of it in advance, twice: by 31 January and by 31 July. The following January you settle the difference between those advances and the actual bill — the balancing payment. The calculated table shows the exact dates and amounts at this profit level.
Why the first year stings
Nobody paid anything in advance during your first year above the threshold, so that January collects the whole bill plus the first advance — roughly one-and-a-half times the annual amount. Every later January collects only the balance plus the next advance, which feels far more manageable. This single quirk is responsible for most first-year sole-trader cash crises.
- Budget for the first January from the day profits cross the threshold.
- Diarise both dates every year: 31 January and 31 July.
- If profits fall, apply to reduce payments on account rather than overpaying.
- If profits rise, top up the reserve voluntarily — the balancing payment catches up otherwise.
What can change your actual payslip
Payments on account are based on last year's bill, so fast-growing businesses always owe a balancing payment and shrinking ones always overpay. If your income has genuinely dropped, claim the reduction through your HMRC online account — but reduce honestly, because interest runs on any shortfall when the real bill is known. Class 4 National Insurance is included in these payments; student-loan repayments collected through Self Assessment are too.
Run the numbers for your own situation
Official references: Figures use the 2026/27 Income Tax rates, employee National Insurance rates and self-employed National Insurance rates. Figures are estimates; payslip timing and individual circumstances can change the result.