The first year your tax bill comes with 50% extra "on account", it feels like a mistake. It isn't — it's HMRC collecting next year's tax in advance, and it catches almost every newly profitable sole trader off guard.
How they work
If your Self Assessment bill is over £1,000 (and less than 80% of your tax was collected at source), HMRC assumes next year will look the same and asks for it in two advance instalments: 50% by 31 January, 50% by 31 July. Next year's actual bill is then settled with a balancing payment — or a refund if you've overpaid.
The infamous first year
Year one is the ambush: on 31 January you owe all of last year's tax plus half of next year's — 150% of the bill you were braced for. Nobody warns you; now you're warned. Put money aside monthly from the start and the ambush becomes a non-event.
Why CIS subcontractors often escape
Payments on account aren't due when at least 80% of your tax was already collected at source — and CIS deductions count as tax collected at source. Many subcontractors with most income under CIS never see payments on account at all; the same logic is why they see refunds instead.
Reducing them — carefully
Expect a genuinely worse year? You can apply to reduce your payments on account. But reduce them below what your final bill turns out to need and HMRC charges interest on the shortfall — so reduce from evidence, not optimism. A live view of this year's profit is exactly the evidence.
This article is general information for UK sole traders and subcontractors, not tax, accounting or financial advice. Rules change — check current HMRC guidance or speak to an accountant about your own position.