Contents
- Introduction
- What has changed in January 2026?
- Understanding payments on account
- Why the first January bill can feel so high
- Frozen tax thresholds and rising incomes
- How this affects homeowners and buyers
- Why budgeting early matters
- What to do if your bill is higher than expected
- When to speak to a professional
- Summary
- FAQs
Introduction
January is rarely the easiest month for household finances. After Christmas spending, winter energy bills and the return to everyday routines, many people are also faced with the Self Assessment tax deadline.
For some taxpayers, January 2026 may feel particularly uncomfortable. The amount due can be higher than expected, not necessarily because anything has gone wrong, but because the bill may include more than one type of payment.
This is especially important for self-employed people, landlords, company directors and anyone with income that is not fully taxed through PAYE. It can also matter for homeowners and buyers, because a larger tax bill can affect savings, mortgage planning and general cash flow.
The key point is simple: a bigger January tax bill does not always mean you have made a mistake. In many cases, it means HMRC is asking you to pay part of next year’s tax in advance.
What has changed in January 2026?
For many people, the biggest surprise in January 2026 is not the tax owed for the tax year that has just ended. It is the extra amount added on top.
If you complete a Self Assessment tax return, HMRC calculates what you owe for the tax year that has just ended. For the tax year ending 5 April 2025, the balancing payment is due by 31 January 2026.
However, some taxpayers also need to make advance payments towards the next tax year. These are called payments on account.
That means the January deadline may include:
The balancing payment for the previous tax year
The first payment on account for the following tax year
This is where the bill can suddenly feel much larger than expected. Someone may have saved for the tax they thought they owed, only to discover that HMRC is also asking for an advance payment towards the next tax year.
The second payment on account is usually due by 31 July 2026.
Understanding payments on account
Payments on account are advance payments towards your next Self Assessment tax bill.
HMRC uses your latest tax bill as a guide and assumes that your income may be broadly similar in the following year. Each payment on account is normally 50% of your previous year’s Income Tax and Class 4 National Insurance liability under Self Assessment.
There are usually two instalments:
- 31 January
- 31 July
For example, if your tax bill for the tax year ending 5 April 2025 is £4,000, HMRC may ask you to pay:
- £4,000 as the balancing payment for the tax year ending 5 April 2025
- £2,000 as the first payment on account towards the tax year ending 5 April 2026
- £2,000 as the second payment on account by 31 July 2026
This means the amount due on 31 January could be £6,000, not £4,000.
The extra £2,000 is not an additional tax charge for the same year. It is an advance payment towards the following year. Even so, it still has to be paid, which is why it can create a real cash flow challenge.
Payments on account are usually required if your Self Assessment bill is more than £1,000 and less than 80% of your tax has already been collected at source, such as through PAYE.
Why the first January bill can feel so high
The first year is often the hardest.
This is common for people who are newly self-employed, have started earning rental income, have taken on freelance work, or have received more untaxed income than usual.
They may be prepared for their first proper tax bill. What they may not expect is the first payment on account being added to the same January deadline.
This is sometimes known as the “150% problem”.
For example, if your Self Assessment tax bill is £3,000 and payments on account apply, your January payment could look like this:
- £3,000 for the tax year just ended
- £1,500 towards the next tax year
That means £4,500 may be due by 31 January.
Then a further £1,500 may be due by 31 July.
Although the payments on account are credited against the following year’s tax bill, that does not always make the first January payment feel easier. The money still needs to be available at the time.
This is why so many people feel caught out. The problem is not always the tax itself. It is the timing.
Frozen tax thresholds and rising incomes
Another reason tax bills may feel higher is the continued effect of frozen tax thresholds.
The standard Personal Allowance for the tax year ending 5 April 2027 remains £12,570. This is the amount most people can earn before paying Income Tax.
When tax thresholds stay the same but wages, profits, rents or other income rise, more of that income can become taxable. Some people may also find that a larger share of their income falls into a higher tax band.
This is often called fiscal drag.
It does not mean that tax rates have necessarily gone up. Instead, people can pay more tax because their income has increased while the thresholds have stayed fixed.
For self-employed people and landlords, this can feel especially noticeable because tax is often paid in larger lump sums through Self Assessment, rather than being deducted gradually each month through PAYE.
The result is a bill that feels more visible, more concentrated and harder to ignore.
How this affects homeowners and buyers
A larger January tax bill can affect more than your tax position. It can also influence your wider financial plans.
For homeowners, a bigger bill may reduce the money available for renovations, emergency savings, mortgage overpayments or moving costs.
For buyers, it may affect the deposit, legal fees, survey costs or general confidence around affordability.
For self-employed mortgage applicants, the timing can be particularly important. Lenders often ask for tax calculations, tax year overviews and evidence of income. If a large tax payment reduces savings or creates short-term borrowing, it may affect how strong the application looks.
That does not mean a tax bill automatically prevents someone from getting a mortgage. However, it can change the conversation.
Landlords may also feel the pressure. Rental income can create a Self Assessment liability, and payments on account can make January more demanding, particularly if there have been repairs, void periods or higher mortgage costs during the year.
For anyone planning to buy, remortgage or invest in property, it is sensible to think about tax early. A January bill should not come as a surprise just as you are preparing to make a major property decision.
Why budgeting early matters
The best way to reduce the January shock is to plan for tax throughout the year.
A useful approach is to set aside a percentage of untaxed income as soon as it is received. This can apply to self-employed earnings, rental income, dividends or side income.
It can also help to submit your tax return earlier. You do not have to wait until January to file. Filing early means you can see what you owe well before the payment deadline.
This gives you more time to prepare, adjust your budget and avoid last-minute pressure.
Early filing can also help if you are applying for a mortgage. It may allow you to provide documents to your mortgage adviser or lender sooner, and it gives a clearer picture of your income and tax position.
Budgeting early is not just about avoiding stress. It helps you make better decisions.
If you know what is due, you can plan around it.
What to do if your bill is higher than expected
If your January 2026 tax bill is higher than expected, the first step is to check what the total includes.
Look carefully to see whether it includes:
The balancing payment for the tax year ending 5 April 2025
The first payment on account towards the tax year ending 5 April 2026
Any other amounts, such as student loan repayments or late-payment interest
If payments on account are the reason, remember that part of the bill relates to the next tax year. It is still payable, but it may explain why the amount looks higher than expected.
If you know your income for the following year will be lower, you may be able to ask HMRC to reduce your payments on account. This might apply if your business has slowed down, you have lost a contract, your rental income has fallen, or you have moved into employment.
However, this should be done carefully. If you reduce your payments too much and your actual bill later turns out to be higher, HMRC may charge interest on the shortfall.
If you cannot afford to pay everything at once, you may be able to arrange a payment plan with HMRC, known as a Time to Pay arrangement. This can help spread the cost, although interest may still apply.
The most important thing is not to ignore the bill. Acting early usually gives you more options.
When to speak to a professional
It can be worth speaking to a professional if your tax bill affects your wider plans.
This may include an accountant, tax adviser or mortgage adviser, depending on your situation.
Advice can be especially useful if you are:
- Self-employed
- A landlord
- A company director
- Planning to buy a home
- Preparing to remortgage
- Managing irregular income
- Expecting your income to fall
- Unsure whether to reduce payments on account
A tax adviser can help you understand what is due and whether your payments on account are realistic. A mortgage adviser can help you understand how your tax position may affect affordability, lender requirements and the timing of your application.
For mortgage brokers, this is also a useful topic to raise with clients early. A client may feel financially ready to buy, but a large January tax payment could affect their deposit, cash flow or borrowing plans.
Tax planning and mortgage planning are different areas, but they often overlap.
Summary
January 2026 tax bills may feel bigger than expected because the amount due can include more than one payment.
For Self Assessment taxpayers, the January deadline may include the balancing payment for the previous tax year plus the first payment on account for the following year. For people dealing with payments on account for the first time, this can make the bill feel much larger than planned.
Frozen tax thresholds, rising incomes and wider household costs can also add to the pressure.
The good news is that there are practical steps people can take. Filing early, saving throughout the year, checking whether payments on account apply and speaking to the right adviser can all help reduce uncertainty.
For homeowners, buyers and landlords, the message is clear: tax planning should not be left until January. Understanding your position early can make property decisions smoother, calmer and more realistic.
Tax rules can vary depending on your circumstances and where you live in the UK, particularly for Scottish taxpayers. This article is general guidance only and should not be treated as personal tax advice.
FAQs
1. Why is my January 2026 tax bill higher than expected?
Your bill may include both the balancing payment for the previous tax year and the first payment on account towards the next tax year. This can make the January payment much larger than expected.
2. What are payments on account?
Payments on account are advance payments towards your next Self Assessment tax bill. They are usually paid in two instalments, one by 31 January and one by 31 July.
3. Who has to make payments on account?
You usually need to make payments on account if your Self Assessment bill is more than £1,000 and less than 80% of your tax has already been collected at source, such as through PAYE.
4. Why does the first year feel so expensive?
The first year can feel expensive because you may need to pay your tax bill for the previous year plus 50% of that amount towards the following year. This can create a much larger January payment than expected.
5. Can I reduce my payments on account?
Yes, if you know your tax bill for the following year will be lower, you can ask HMRC to reduce your payments on account. However, you should be careful, as reducing them too much may lead to interest on the underpaid amount.
6. What happens if I cannot pay my tax bill?
You may be able to arrange a payment plan with HMRC, known as a Time to Pay arrangement. This can help spread the cost, although interest may still apply.
7. Can a tax bill affect my mortgage application?
Yes, it can. A large tax payment may affect your savings, deposit or overall affordability. Self-employed applicants may also need to provide tax documents as part of their mortgage application.
8. Should I file my tax return before January?
Yes, this can be helpful. Filing early gives you more time to understand what you owe and prepare for the payment deadline.
9. Do frozen tax thresholds make tax bills higher?
They can. If thresholds stay the same while income rises, more of your income may become taxable or move into a higher tax band.
10. Should I speak to an adviser before reducing payments on account?
Yes, this is sensible if you are unsure. Reducing payments can help cash flow, but only if your expected income genuinely supports the reduction.
