Payment on account is an advance payment towards your next tax bill, calculated at 50% of your previous year's Self Assessment liability. You pay in two instalments: 31 January and 31 July. This helps HMRC collect tax closer to when you earn income, and helps you spread payments rather than facing one large bill.
This guide explains when payments on account apply, how to calculate them, and what to do if your income changes.
How Payment on Account Works
The Basic Concept
| Aspect | Details | |--------|---------| | What it is | Advance payment for next year | | Based on | Previous year's tax bill | | Amount | 50% of last year's liability | | Instalments | Two per year | | Deadlines | 31 January and 31 July |
Why HMRC Requires It
Self-employed and rental income is taxed after the year ends. Payment on account:
- Collects tax closer to when income is earned
- Spreads your payments across the year
- Reduces year-end payment shock
When You Pay
The Payment Cycle
For the 2024/25 tax year (6 April 2024 – 5 April 2025):
| Payment | Deadline | What You Pay | |---------|----------|--------------| | 2024/25 tax + 1st POA for 2025/26 | 31 January 2026 | Balance + 50% advance | | 2nd POA for 2025/26 | 31 July 2026 | 50% advance | | 2025/26 balance + 1st POA for 2026/27 | 31 January 2027 | Remainder + 50% advance |
POA = Payment on Account
Visualising the Cycle
| Month | What's Due | |-------|------------| | January 2026 | Final tax for 2024/25 + 1st payment on account for 2025/26 | | July 2026 | 2nd payment on account for 2025/26 | | January 2027 | Balancing payment for 2025/26 + 1st payment on account for 2026/27 |
The cycle continues each year.
Who Has to Pay
Payment on Account Applies If
Both conditions must be met:
| Condition | Threshold | |-----------|-----------| | Self Assessment bill | Over £1,000 | | Tax not collected at source | More than 20% of total |
You DON'T Pay If
| Situation | Why | |-----------|-----| | Tax bill under £1,000 | Below threshold | | 80%+ of tax paid via PAYE | Most tax already collected | | First year of Self Assessment | No previous bill to base on |
Examples
Sarah: Freelancer
- Tax bill: £5,000
- No PAYE income
- Result: Pays payment on account (£2,500 × 2)
James: Employee with Side Hustle
- PAYE tax: £8,000
- Self Assessment tax: £600
- Total: £8,600 (93% via PAYE)
- Result: No payment on account (under £1,000 SA liability)
Emma: Part-Time Employee + Landlord
- PAYE tax: £3,000
- Self Assessment tax: £1,500
- Total: £4,500 (67% via PAYE)
- Result: Pays payment on account (over £1,000 and less than 80% via PAYE)
Calculating Payment on Account
The Formula
Each payment on account = 50% of previous year's Self Assessment liability
| Previous Year's Bill | Each POA | Total POA | |---------------------|----------|-----------| | £2,000 | £1,000 | £2,000 | | £4,000 | £2,000 | £4,000 | | £6,000 | £3,000 | £6,000 | | £10,000 | £5,000 | £10,000 |
What Counts as 'Previous Year's Liability'
| Included | Not Included | |----------|-------------| | Income Tax (Self Assessment) | Tax paid via PAYE | | Class 4 National Insurance | Student loan repayments | | Class 2 National Insurance | Penalties or interest |
Example Calculation
Tom's 2024/25 Tax Bill:
| Item | Amount | |------|--------| | Income Tax (Self Assessment) | £4,200 | | Class 4 NI | £1,800 | | Class 2 NI | £179 | | Total SA liability | £6,179 |
Payments on account for 2025/26:
- 1st POA (31 Jan 2026): £3,089.50
- 2nd POA (31 Jul 2026): £3,089.50
First Year of Self Assessment
No Advance Payments
In your first year, there's no previous bill to base payments on account on:
| Year | What Happens | |------|--------------| | First year | Pay full bill only (no POA) | | Second year | Pay bill + POA (50% × first year bill) |
The First Year Shock
Your second January bill includes:
| Component | Amount | |-----------|--------| | Remaining 2024/25 tax | Full amount | | 1st POA for 2025/26 | 50% of 2024/25 bill | | Total | Up to 150% of first year |
Example:
- First year bill: £6,000
- Second January: £6,000 + £3,000 = £9,000
Plan ahead to avoid this shock.
The Balancing Payment
When Actual Differs from Estimate
If your 2025/26 income differs from 2024/25:
| Scenario | Result | |----------|--------| | Income higher | Balancing payment due | | Income lower | Refund due | | Income same | Little or no balance |
Example: Higher Income
Previous year: £40,000 profit, £6,000 tax Current year: £50,000 profit, £8,000 tax
| Payment | Amount | |---------|--------| | 1st POA paid | £3,000 | | 2nd POA paid | £3,000 | | Actual tax due | £8,000 | | Balancing payment | £2,000 |
Example: Lower Income
Previous year: £40,000 profit, £6,000 tax Current year: £30,000 profit, £4,000 tax
| Payment | Amount | |---------|--------| | 1st POA paid | £3,000 | | 2nd POA paid | £3,000 | | Actual tax due | £4,000 | | Overpaid | £2,000 |
The £2,000 is refunded or offset against next year's payments.
Reducing Payment on Account
When to Reduce
You can apply to reduce payments if you expect:
| Reason | Example | |--------|---------| | Lower income | Client loss, reduced work | | Business ceased | No longer self-employed | | Higher expenses | One-off large deductions | | Tax reliefs | Pension contributions, EIS |
How to Apply
| Method | Steps | |--------|-------| | Online | Log in to Government Gateway → Self Assessment → Reduce payments on account | | Form SA303 | Download, complete, post to HMRC |
When to Apply
Apply before the payment deadline. Ideally:
| Payment | Apply By | |---------|----------| | 1st POA (31 Jan) | Early January | | 2nd POA (31 Jul) | Early July |
Important Warning
If you reduce payments too much:
| Consequence | Impact | |-------------|--------| | Interest charged | On underpaid amount from original due date | | No penalty | But interest adds up |
Only reduce if you're confident income will be lower.
Example: Reducing POA
Situation:
- Previous year's bill: £8,000
- Each POA due: £4,000
- Expected current year bill: £4,000
Action:
- Apply to reduce POA to £2,000 each
- Save £4,000 in advance payments
- Verify estimate is accurate
What If You Can't Pay
Payment Difficulties
If you can't pay by the deadline:
| Option | How | |--------|-----| | Time to Pay | Arrange instalments with HMRC | | Pay what you can | Reduces interest on remainder | | Contact HMRC | Before the deadline |
Time to Pay Arrangement
| Debt Amount | How to Apply | |-------------|--------------| | Under £30,000 | Online through Government Gateway | | Over £30,000 | Call HMRC Self Assessment helpline |
HMRC may agree instalments over up to 12 months.
Interest and Penalties
| Late Payment | Consequence | |--------------|-------------| | 1-30 days | Interest only | | 30+ days | 5% penalty + interest | | 6 months | Additional 5% penalty | | 12 months | Additional 5% penalty |
Learn more: Self Assessment Deadlines
Overpayments and Refunds
If You've Overpaid
When final calculation shows you've paid too much:
| Option | How | |--------|-----| | Refund | Request via Government Gateway or phone | | Offset | Apply to next year's payments |
How to Claim a Refund
- File your Self Assessment return
- HMRC calculates actual liability
- If POA exceeded actual, overpayment shows
- Request refund online or call HMRC
- Refund typically arrives within 4-6 weeks
Payment on Account Example
Full Year Walkthrough
Sophie: Self-Employed Consultant
2024/25 Tax Return (filed January 2026):
| Item | Amount | |------|--------| | Profit | £52,000 | | Income Tax | £7,086 | | Class 4 NI | £2,366 | | Class 2 NI | £179 | | Total liability | £9,631 |
What Sophie Pays:
| Date | Payment | Amount | |------|---------|--------| | 31 Jan 2026 | 2024/25 tax | £9,631 | | 31 Jan 2026 | 1st POA 2025/26 | £4,815.50 | | 31 Jan total | | £14,446.50 | | 31 Jul 2026 | 2nd POA 2025/26 | £4,815.50 |
2025/26 Tax Return (filed January 2027):
Assume Sophie's income increased:
| Item | Amount | |------|--------| | Actual 2025/26 liability | £11,000 | | Less: POA already paid | −£9,631 | | Balancing payment | £1,369 | | Plus: 1st POA 2026/27 | £5,500 | | 31 Jan 2027 total | £6,869 |
Budgeting for Payments on Account
Set Money Aside
| Approach | Method | |----------|--------| | Monthly | Set aside 25-30% of profit monthly | | Per payment | Save for January and July dates | | Tax account | Separate savings account for tax |
The 25-30% Rule
For most self-employed, setting aside 25-30% of profit covers:
| Tax | Approximate Rate | |-----|------------------| | Income Tax | 20-40% of taxable profit | | Class 4 NI | 6-2% of profit | | Class 2 NI | ~£180/year |
Calendar Reminders
| Reminder | When | |----------|------| | Review income | Quarterly | | Check POA accuracy | November (before Jan deadline) | | Pay or reduce POA | 2 weeks before deadline |
Summary: Payment on Account Quick Reference
When You Pay POA
| Condition | POA Required? | |-----------|--------------| | SA bill over £1,000 AND less than 80% via PAYE | Yes | | SA bill under £1,000 | No | | 80%+ of tax paid via PAYE | No |
How Much
| Each Payment | Formula | |--------------|---------| | 1st POA (31 Jan) | 50% of previous year's liability | | 2nd POA (31 Jul) | 50% of previous year's liability |
Key Dates
| Date | Payment | |------|---------| | 31 January | Previous year's balance + 1st POA | | 31 July | 2nd POA |
If Income Changes
| Income | Action | |--------|--------| | Lower than last year | Apply to reduce POA | | Higher than last year | Balancing payment due in January | | Same as last year | POA covers most of liability |
Plan Cash Flow with TaxFolio
TaxFolio helps you manage payments on account:
- Real-time tax estimate — know what you'll owe before January
- Payment reminders — never miss 31 January or 31 July
- Income tracking — see if you should reduce POA
- Cash flow planning — set aside the right amount
- Self Assessment filing — submit directly to HMRC
- From £69.99/year — plan ahead for tax payments
Start your free 30-day trial and take control of your tax payments.