Blog

Your first big year and the 150% tax bill

By Buzz Accounting · 2026-07-14

Here's the January conversation nobody wants. A creator has their first proper year — say £48,000 profit — works out the tax and National Insurance, budgets carefully for it, and then opens the HMRC calculation to find the amount due is half as big again as the number they saved for. Nothing has gone wrong. That is payments on account working exactly as designed, and it catches almost every creator whose income steps up in a single year.

The mechanism itself is simple. What makes it land badly on creators specifically is that platform income tends to arrive as a step change rather than a gentle climb — one video that runs, one brand cycle, one product launch — and payments on account assume the step is the new normal. Here is the whole thing, with the real 2026/27 rates and the arithmetic worked through.

The rule that switches payments on account on

There are two ways out, and you need only one of them:

Your Self Assessment liability for the year was £1,000 or less, or
More than 80% of the tax you owed was already collected at source — through a PAYE tax code, or deducted before you were paid.

Clear either and you pay once a year and nothing further happens. Clear neither — which a full-time creator on £48,000 of profit and no employment income does comfortably — and HMRC assumes next year will look like this year, and starts collecting it in advance:

31 January: the whole of last year's tax, plus 50% of it again as the first payment on account for the year already in progress.
31 July: the second 50%.

So the first January after a good year costs roughly 150% of a year's tax, and the following July costs another 50% on top of that.

Worked example — a creator's first big year. The channel figures are illustrative; every tax rate and threshold below is the real 2026/27 one.

A full-time creator trades as a sole trader with no employment income. For 2026/27 the accounts show £48,000 of profit after expenses.

Income tax. The £12,570 personal allowance comes off first, leaving £35,430 taxable. All of it sits inside the basic-rate band, which runs to £50,270, so it is taxed at 20%: £7,086.

Class 4 National Insurance. Charged at 6% on trading profits between £12,570 and £50,270 — 6% of £35,430: £2,125.80.

Class 2 National Insurance. Nil to pay. Profits above the £7,105 small profits threshold are treated as having paid Class 2 without any payment being made, so the state pension record is protected at no cost.

Total 2026/27 liability: £9,211.80. That is the number the creator saved for. Here is what HMRC actually asks for:

• 31 January 2028 — £13,817.70 (the £9,211.80 balancing payment, plus £4,605.90 as the first payment on account for 2027/28)
• 31 July 2028 — £4,605.90 (the second payment on account)

£18,423.60 leaves the bank inside six months, against a tax year that generated £9,211.80 of liability. A 25% set-aside that felt cautious all year holds £12,000 — nearly £2,000 short of the January payment on its own.

Year two is where it evens out

The payments on account are not extra tax. They are the same tax, earlier. When the 2027/28 return is filed, the £9,211.80 already paid on account is credited against whatever that year's liability turns out to be, and only the difference changes hands.

Follow the same creator into a quieter 2027/28, with profit down to £30,000. Income tax is 20% of (£30,000 − £12,570) = £3,486. Class 4 is 6% of the same £17,430 = £1,045.80. Total liability £4,531.80 — against £9,211.80 already handed over. So on 31 January 2029 HMRC repays £4,680, and the payments on account for 2028/29 reset to £2,265.90 each.

That is the part worth understanding before the first January arrives. The system is not punitive and it does not tax the same money twice; it costs you one year's tax as a permanent float with HMRC, and it hurts precisely once — in the year your income steps up.

Reducing payments on account, and what it costs to get it wrong

If your income genuinely falls, you can ask HMRC to reduce the payments. Sign in to your HMRC online account, open your latest return and choose 'Reduce payments on account', or send form SA303 by post. You state what you expect to earn and the instalments are recalculated.

The trap is that this is an estimate you are held to. If the reduced payments turn out to be lower than what was actually due, HMRC charges interest on each shortfall from its original due date — not from the date you filed the return that revealed it. Late payment interest is 7.75% from 9 January 2026, set at the Bank of England base rate of 3.75% plus four percentage points, so it moves whenever the base rate moves.

Put a number on it. Suppose the creator above reduced both 2027/28 payments on account to nil expecting a quiet year, and the year in fact held steady, leaving £4,605.90 properly due on each date. Interest runs on the first instalment from 1 February 2028 and on the second from 1 August 2028, both until the balance is settled on 31 January 2029: about £357 and £180 — roughly £537 in total. Not ruinous, but it is a pure penalty for guessing, charged on top of tax that still has to be paid in full.

So the decision rule is: reduce payments on account on evidence, not on mood. A retainer that has ended, a platform rate change that has already hit your dashboard, or a break you have already booked all count. "This quarter feels slower" does not.

Why this bites creators harder than other sole traders

The step change. Most self-employed income grows along a line. Creator income jumps — one format that works, one product that lands, one quarter that fills with brand work. Payments on account extrapolate the jump and assume it repeats.
The gap between earning and paying. Profit made in April 2026 is not paid for until 31 January 2028 — twenty-one months later. By then the money has usually gone on kit, an editor or living costs, and the thing that earned it may not be earning any more.
Nothing is withheld. AdSense, brand fees, affiliate commission, Patreon — almost every payout arrives gross, with no PAYE code quietly doing the saving for you. The main exception is US withholding on the American share of AdSense views, and even that is a credit against your UK bill rather than a payment towards it; our post on AdSense and US withholding tax covers how the two interact.

Missing the January payment costs on two counts. Interest runs from 1 February at 7.75%, and separately a late payment penalty of 5% of the tax still unpaid is charged at 30 days, again at 6 months and again at 12 months.

Making Tax Digital does not change when you pay

From April 2026, sole traders and landlords with qualifying income over £50,000 must keep digital records and send HMRC a quarterly update; from April 2027 the same applies above £30,000. It is easy to read "quarterly" as "quarterly tax bills". It is not. The updates are information, not payment. The dates stay at 31 January and 31 July, and payments on account carry on exactly as set out above. What does change is that a quarterly rhythm makes the January figure visible months earlier — which is precisely the problem payments on account create. Our post on Making Tax Digital for creators sets out who is in and when.

What to do this week

Find your last liability. Open your most recent HMRC tax calculation and read off the total income tax and Class 4 figure. Over £1,000, with under 80% collected at source, means payments on account apply — half in January and half in July.
Write the January number down. Last year's balance, plus half of it again, less any payment on account already made. One number, on paper, before Christmas rather than in the last week of January.
Move the set-aside to 30% of profit. A flat 25% does not survive a first big year, because January asks for 150% of a year's tax. Transfer it the day each payout lands, not monthly — the income is lumpy and a standing order set in a good month becomes a problem in a quiet one.
Diarise 31 July. It is the payment everyone forgets, because nothing is filed on that date and nothing arrives to remind you.
Decide on a reduction by early January — with figures, and only where the drop has already happened.

The creator tax calendar has every date in one place, and the creator tax guide works through the rates underneath. Or get your own number months ahead — which is the only version of this that never becomes a January problem.

Quick answers

About this post

Why is my first Self Assessment bill so big?

Because it is one and a half years of tax in a single payment. Once your Self Assessment liability passes £1,000 and less than 80% of your tax was collected at source, HMRC assumes the coming year will match the one just filed, and collects half of it in advance. So 31 January brings the whole of last year's tax plus 50% of it again, and the following 31 July brings the other 50%. On a £9,211.80 liability that is £13,817.70 in January and £4,605.90 in July. Nothing has been calculated wrongly and nothing is taxed twice — the extra amounts are payments towards a year you have not filed yet.

Can I reduce my payments on account, and what happens if I get it wrong?

Yes. Sign in to your HMRC online account, open your latest return and choose 'Reduce payments on account', or send form SA303 by post, telling HMRC what you expect to earn. The risk then sits entirely with you. If the reduced payments turn out to be less than what was actually due, HMRC charges interest on each shortfall from its original due date, not from the date the mistake came to light. Late payment interest is 7.75% from 9 January 2026 — the Bank of England base rate of 3.75% plus four percentage points. Reducing two instalments of £4,605.90 to nil and being wrong costs roughly £537 in interest by the following January.

How much should a creator set aside for tax?

Thirty per cent of profit, not twenty-five, in any year your income is rising. On £48,000 of profit the actual 2026/27 liability is £9,211.80 — about 19% of profit — so 25% looks generous right up until payments on account arrive and January alone asks for £13,817.70. Thirty per cent of that £48,000 is £14,400, which covers January and makes a start on July. Move it on the day each payout lands rather than monthly, because platform income is lumpy. Once payments on account are established and income is stable, the set-aside can come back down, since a year's tax is already sitting with HMRC as a float.

Do payments on account apply if I also have a PAYE job?

Often not, because of the 80% test: if more than 80% of your total tax bill was already collected at source, payments on account are not required however large the balance is. Take a creator on a £40,000 salary with £6,000 of channel profit in 2026/27. PAYE has already collected £5,486 on the salary. The channel profit is taxed at 20% — £1,200 — with no Class 4 National Insurance, because Class 4 looks at trading profits alone and £6,000 is below the £12,570 starting point. Tax collected at source is £5,486 out of £6,686, or 82%, so no payments on account arise. Grow the channel and that percentage falls, and eventually they start.

Does Making Tax Digital change when I pay?

No. From April 2026 sole traders with qualifying income over £50,000 must keep digital records and send HMRC a quarterly update, and from April 2027 the same applies above £30,000. Those updates are information only: they do not create quarterly tax bills and they do not move a single deadline. Payment stays on 31 January and 31 July, payments on account work exactly as they always have, and a final declaration replaces the Self Assessment return at the end of the year. The practical difference is that a quarterly rhythm makes the January figure visible far earlier, which is the one thing that actually defuses payments on account.

Free · straight to your inbox

Liked this? Get the next one.

Practical creators and online business owners tax and money tips by email — no jargon, unsubscribe any time.

No spam, no jargon. Unsubscribe any time.