HMRC has a policy where self-employed individuals must pay 50% of expected income tax & NI contributions in the following year in two instalments due January and July of the current year, which is called a payment on account.
To do this, it assumes your current tax year earnings / liabilities will be the same as the previous year.
So for example, I have to pay £6,956.70 on 31 January 2018 – calculated by income tax (£5,782) and a student loan repayment (£3,335) which totals £9,117, minus the two £2,392.65 payments on account made on 31 January 2017 and 31 July 2017, leaving £4,331.70. So that, plus the payment on account of £2,625.00, equals the amount due of £6,956.70.
Additionally, I have to pay £2,625 on 31 July 2018 as well, which is the second payment on account for this tax year. As the payment on account is £2,625, HMRC is assuming my Sep 2017 - Sep 2018 income tax will be £5,250.
However, I stopped contracting took a permanent role in July 2017, am earning less, and being taxed at source now, i.e. through PAYE. So my question is: why do I still have to make a payment on account?