Why is there a second tax bill in July?

What it actually is

It is not an extra tax and it is not a penalty. It is next year's bill, estimated at the same figure as last year's, and collected in two halves before the year it belongs to has finished.

It starts the first year your Self Assessment bill comes to £1,000 or more, unless more than four fifths of your tax for that year was already taken at source. That is why the shock usually lands in a trade's second or third good year rather than the first.

Why the first year hurts twice

In the January you first cross the line you pay last year's bill in full AND the first half of next year's, in one go. Six months later the second half arrives. After that it settles into a rhythm, but nobody warns you about the year it changes.

The July one catches people out

January is in everybody's head. July is not, and for a lot of trades it lands in a quieter stretch of the year with the January payment still fresh. If you set money aside monthly rather than annually, this is the reason to keep doing it through the summer.

You can ask for less, carefully

If this year is genuinely quieter than last, you can apply to reduce your payments on account. The catch is that HMRC charges interest on the shortfall if you reduce them too far and the real bill comes in higher, so the estimate needs to be honest rather than hopeful.

The one that surprises people

CIS deductions already taken off your payments count towards the bill, so a subcontractor with tax deducted all year often has smaller payments on account than the turnover suggests, or none at all. Work the whole picture out before assuming the demand is right.