If you file a Self Assessment return and your tax bill is anything more than modest, HMRC will ask you to pay next year’s tax in two advance instalments — called Payments on Account (POAs). Many first-time Self Assessment filers are caught off-guard when their January 31 bill is 150% larger than expected because it bundles last year’s balance plus the first POA for the current year. This guide walks through who has to pay POAs, exactly how HMRC sets the amount, the two annual deadlines, and the income-source rules that determine whether POAs apply at all.
What a Payment on Account Actually Is
A Payment on Account is HMRC’s way of collecting tax in advance for the current Self Assessment year, based on the assumption that your income will be similar to last year. Each POA is set at exactly half of your previous year’s Self Assessment liability (excluding Capital Gains Tax and student loan repayments, which are settled differently). HMRC then bills two POAs — one due 31 January and one due 31 July — followed by a balancing payment the following 31 January to true up against your actual liability.
The system spreads the cash demand across the year so HMRC isn’t waiting 21 months from the start of the tax year (6 April) to receive any tax on Self Assessment income. For taxpayers it means a smoother payment schedule but also a Jan 31 bill that is much larger than the headline current-year tax owed, because it stacks the prior-year balance + the next-year POA in one go.
Who Has to Pay Payments on Account
You will be required to make POAs if both of these are true on your Self Assessment return for the year:
- Your total Self Assessment liability is more than £1,000, after deducting tax already paid via PAYE, CIS deductions, and dividend tax credits where applicable; AND
- Less than 80% of your total tax liability for the year was already collected at source.
Both tests are applied to the same tax year’s liability. If either test fails, no POA is required for the following year.
Test 1 — the £1,000 threshold. This is the simpler condition. If your year-end Self Assessment balance is £999 or less, HMRC asks you to pay it once on 31 January and skips POAs entirely. If it’s £1,000.01, POAs kick in.
Test 2 — the 80% rule. This is the one that catches employed people with side income. If you’re a PAYE employee with £500 of freelance profit on top, almost all your tax was collected at source — over 80% — so no POAs apply. But a self-employed sole trader with no PAYE has 0% collected at source, so once they cross £1,000 in tax owed, full POAs kick in immediately.
How the 50/50 Split Is Calculated
Once HMRC determines POAs apply, the maths is mechanical:
| Item | Calculation | Example |
|---|---|---|
| Prior-year Self Assessment liability | From 2024-25 SA302 | £8,400 |
| POA 1 (due 31 January 2026) | 50% of prior-year SA | £4,200 |
| POA 2 (due 31 July 2026) | 50% of prior-year SA | £4,200 |
| Total advance towards 2025-26 | 100% of prior-year SA | £8,400 |
If the actual 2025-26 liability turns out to be £9,200, the balancing payment of £800 is due 31 January 2027 alongside the first POA for 2026-27 (£4,600). If 2025-26 is only £6,000, you’ve overpaid by £2,400 and HMRC issues a refund or sets it against the next POA.
Class 4 NI is included in the POA base. Class 2 NI, Capital Gains Tax, and student loan repayments are excluded — they’re settled in a single annual payment with no advance instalments.
When POAs First Trigger — A Common First-Year Surprise
The most painful Self Assessment moment is the year POAs first apply. If your 2024-25 liability is £5,000 and 2023-24 was below the threshold (so no POAs were billed), then your 31 January 2026 payment is £7,500:
- £5,000 — balancing payment for 2024-25
- £2,500 — first POA for 2025-26 (50% of £5,000)
That’s 50% more than the headline tax liability. The same again is then due 31 July 2026 (£2,500 POA 2). HMRC does not warn taxpayers in advance — the SA300 statement issued in December simply lists both amounts.
If you’re newly self-employed or just crossed the £1,000 threshold, plan for POAs from the start of your second profitable year. A reasonable rule of thumb: set aside 130-150% of your expected current-year tax in a separate savings account, so you can cover the balance + POA 1 in January without scrambling.
How Each Income Type Interacts
| Income source | Tax collected at source? | Effect on POA |
|---|---|---|
| PAYE employment | Yes (full marginal rate) | Counts towards 80% rule |
| CIS subcontractor | Yes (20% / 30% deduction) | Counts towards 80% rule |
| Dividends from UK company | No (since 2016 abolition of dividend tax credit) | Does not count |
| Self-employed profits | No | Does not count |
| Rental property income | No | Does not count |
| Foreign income | Generally no | Does not count |
| Pension income (PAYE) | Yes (via tax code) | Counts towards 80% rule |
| Capital gains | No (paid annually) | Excluded entirely from POA base |
Worked example — mixed income, no POA: A teacher (£42,000 PAYE salary) with £600 freelance tutoring profit. PAYE collects ~£6,000 of tax at source. The Self Assessment additional liability on the freelance side is roughly £180 (20% basic rate + 8% NI on the profit). Total liability ~£6,180; collected at source £6,000 = 97% — passes 80% test, no POAs required.
Worked example — mixed income, POAs apply: Same teacher but with £20,000 freelance profit. PAYE collects £6,000; Self Assessment liability adds ~£6,000 in additional tax + Class 4 NI on the freelance. Total ~£12,000; collected at source £6,000 = 50% — fails 80% test, POAs apply.
When You Can Reduce a POA
If you know your current-year income will be lower than last year (career break, parental leave, business slowdown, retirement), you can apply to reduce a POA before the deadline. But reducing too far is an interest-bearing mistake — HMRC charges interest on any underpayment from the original due date. See the POA reduction guide for the SA303 / online process and risk thresholds.
When You Can Skip POAs Entirely
If you expect your next-year Self Assessment liability to be under £1,000 or to fail the 80% rule (e.g., you’ve moved back into full-time PAYE employment), you can apply to reduce both POAs to zero via the same SA303 process. HMRC accepts these voluntarily but will charge interest if it turns out you owed more than £1,000.
The other clean way to exit POAs: switch your tax code so that any residual freelance / rental income is collected via PAYE adjustment (you can ask HMRC to “code out” small Self Assessment debts under £3,000 if you have enough PAYE income).
Frequently Asked Questions
Q: Can I pay both POAs in one go on 31 January? Yes — there’s no penalty for paying POA 2 early. Many self-employed people do this for simplicity. The cash leaves your account 6 months earlier but you avoid a second deadline to track.
Q: What if I miss the 31 July POA deadline? HMRC charges interest from the day after the deadline at the late-payment rate (currently 8.50% p.a. — see the HMRC late-payment interest guide). No surcharge or penalty applies on POAs (only on the balancing payment), so a delayed POA is purely an interest cost — typically £20-£200 if you catch up within a few weeks.
Q: Are POAs the same as quarterly VAT or PAYE for an employer? No. POAs are personal Self Assessment instalments — twice a year, based on prior-year liability. VAT and PAYE for employers are separate regimes with their own quarterly / monthly schedules and are unrelated to POA mechanics.
Q: Does Capital Gains Tax show up in my POA? No. CGT is excluded from the POA base — it’s settled in a single payment by 31 January following the disposal year. The same applies to student loan repayments triggered by Self Assessment income.
Q: I got married and now file jointly — does that change my POA? The UK doesn’t have joint Self Assessment filing. POAs are calculated per individual based on each person’s own liability. Marriage Allowance can transfer £1,260 of personal allowance between spouses (potentially nudging one below the £1,000 trigger), but the POA rules apply to each individual return independently.
Q: I’m a director-shareholder — do I owe POAs on dividend income? Yes, if total Self Assessment liability exceeds £1,000 and less than 80% is collected at source. Director PAYE salary contributes to the 80% calculation, but dividends do not. A typical owner-managed director taking £12,570 PAYE salary + £40,000 dividends will fail the 80% test and owe POAs.
Sources
- HMRC: Pay your Self Assessment tax bill — payments on account
- HMRC: Self Assessment claim to reduce payments on account (SA303)
- HMRC: SA300 self assessment statement — what’s on it
- TMA 1970, ss 59A and 59B (statutory basis for POAs and balancing payments)
Plan your POA cash flow
Use the payment on account calculator to model your prior-year liability into the two POA instalments, and the income tax calculator to estimate this year’s liability before deciding whether to reduce. If your 2025-26 income is genuinely lower, the POA reduction guide walks through the SA303 process. If you’ve missed deadlines, the HMRC late-payment interest article shows what’s accruing.