If your Self Assessment bill is over £1,000, HMRC does not wait until the following January for all of next year's tax. They take two advance payments, each usually half of what you owed last year, due on 31 January and 31 July. Those are payments on account.

The first time this happens, 31 January includes last year's full bill and the first advance payment. People describe it as paying 150% in one go. It is a prepayment, credited against next year's bill. It is not a fine.

When they apply

You have to make the two payments unless one of these is true:

Your Self Assessment statement, or the statements page in your online account, shows whether they apply and how much they are.

The figure they are based on is the Income Tax and Class 4 National Insurance collected through Self Assessment. Capital Gains Tax and student loan repayments sit on the balancing payment, not inside the payments on account themselves.

The first year, in numbers

You have not made payments on account yet, because there was no previous Self Assessment bill to copy. So January is the full calculation plus the first 50%.

Take a sole trader in England, Wales or Northern Ireland with £30,000 profit, no other income, claiming actual expenses rather than the trading allowance. The tax calculator gives £3,486.00 Income Tax and £1,045.80 Class 4, total £4,531.80.

On 31 January you pay:

£6,797.70 in one hit. Then £2,265.90 again on 31 July.

If you have been setting aside 25% of profit through the year, the pot is £7,500 and it covers this. If you have not, this is the January that wrecks people.

The year after that

The two payments on account already on HMRC's books are credited against the next bill.

If year two's bill is again £4,531.80, the two payments of £2,265.90 have already covered it. On 31 January you do not pay another full bill. You pay the first payment on account towards year three, another £2,265.90, and the second one follows on 31 July.

If year two's bill is higher, you also pay the extra as a balancing payment on 31 January, on top of the next first payment on account. If it is lower, you may be due a refund, or a smaller balancing figure.

That is why the second January is usually calmer than the first, provided your profit has not jumped.

How they are calculated

HMRC copies last year's Self Assessment tax, halves it, and calls each half a payment on account. It is an estimate based on the past, not a reading of this year's invoices.

Work more this year and you will still owe a balancing payment. Work less and you should not just sit there overpaying.

Reducing them

If you know this year's tax will be lower, ask HMRC to reduce the payments. You can do it in your online Self Assessment account (choose "Reduce payments on account") or on paper with form SA303.

You have to tell them the tax you expect to owe, so they can reset the two instalments. Do this because profit has genuinely fallen, you have stopped trading, or something similar. Not because January is inconvenient.

Reduce them too far and you will be charged interest on the difference once the real bill is known. The interest is on what you should have paid, not a separate penalty, but it still costs money. Do not guess a round zero unless you actually expect to owe nothing.

If you would rather pay everything next January

You cannot opt out because the timing is inconvenient. HMRC copies last year's bill because that is the estimate they have, then spreads it across January and July.

If you cannot pay the January total, file the return on time anyway, then read what to do if you cannot afford the bill. Leaving the return unfiled on top of an unpaid bill is how the penalty ladder gets involved.