Payments on account are advance instalments towards the following year’s tax, each 50% of your previous year’s liability, due 31 January and 31 July. The reason your first bill feels brutal is arithmetic: in your first January you pay the whole of year one plus the first instalment of year two — 150% of a year’s tax in one go. Nobody warns you, and it is the most common cash flow shock we see in new businesses. You are exempt if your liability was under £1,000 or if more than 80% of your tax was already collected at source. If your income has genuinely fallen you can apply to reduce the payments, but reduce them below the eventual liability and HMRC charges interest on the shortfall.