What a sole trader actually pays on 31 January

Every year someone rings us in the second week of January, surprised by the size of their tax bill. The return is usually right. What catches people out is that the 31 January payment is really two payments added together.

The balancing payment

The first part is whatever you still owe for the tax year that ended the previous April. If you made payments on account during that year, they come off; the balance is what is left.

The first payment on account

The second part is an advance on next year’s bill. HMRC assumes next year will look like this one, so it asks for half of this year’s bill now and the other half on 31 July.

In your first year of trading there were no payments on account, so the January bill can be close to one and a half times the tax on the year. That is the jump most people did not see coming.

Worked example

Say your tax and Class 4 National Insurance for 2025/26 come to £6,000, and you made no payments on account. On 31 January 2027 you pay:

• £6,000 for 2025/26
• £3,000 as the first payment on account for 2026/27

That is £9,000 in January, and a further £3,000 on 31 July.

How to avoid the surprise

File early. We aim to give every client their figure by 31 October, three months before it is due. If your profit is falling, we ask HMRC to reduce the payments on account so you are not paying tax in advance on money you have not made.

If you would like the number in October instead of January, book a free call and we will tell you what we need.