What is a payment on account?

A payment on account (POA) is an advance payment that is made twice a year and designed to help you spread the cost of what you owe for the next tax year. It is calculated by looking at your previous year’s tax bill. 

The first instalment is due on 31st January and the second on 31st July. Once you've calculated your tax liability, the difference between your actual tax bill and the POAs is payable by 31st January following the tax year as a balancing payment.  

Note this means you could be paying tax for two different tax years on any given 31st January because of this.  

Who makes a payment on account?

You need to make a payment on account if your tax bill is more than £1,000, unless you’ve already had more than 80% of it collected at source. This may include tax taken through your PAYE tax code or it might have been deducted from any additional income you have, e.g. interest on a loan made to a company. 

How much is a payment on account?

Each of the two POAs will usually be 50% of your previous tax bill.  

For example: 

You paid £15,000 of income tax in the tax year 2024/25 by 31st January 2026. 

You will make the first POA for 2025/26 of £7,500 on 31st January 2026, and a second of £7,500 on 31st July 2026. If your tax bill for 2025/26 is higher than £15,000, you will make a balancing payment on 31st January 2027. 

Where applicable, POAs will include Class 4 National Insurance Contributions, but not capital gains tax or student loan repayments. 

Fluctuating income

Payments On Account are best suited for taxpayers who do not experience major changes in their taxable income as they are based on your income from the previous year. 

Should you find that your POAs end up being higher than your tax bill, HMRC will refund the difference. 

If you experience a drop in business profits or your taxable income is down, you can request that HMRC reduce your POAs if you think your tax bill is going to be lower than the previous year. In the first instance you should make this request via your HMRC online account or if you cannot do this, you can make the request by post on Form SA303. 

Remember to keep in mind that if you still have tax to pay after you’ve made your POAs, not only will you have to make a ‘balancing payment’ but you may also be charged interest and penalties if you end up paying too little. 

You must pay your balance by midnight 31st January after the end of the tax year. 

Example of Payment Of Account 

The below example helps explain why you need to pay attention to the level of your taxable profits:  

Sam’s 2024/25 tax bill is £3,000. This tax arose due to Sam being self-employed and she had no income tax deducted at source.  

£3,000 is above the payment on account threshold, so stage payments will be triggered.  

As well as the £3,000 tax payment which Sam owes HMRC for 2024/25, Sam will also be liable to a first payment on account for 2025/26 of £1,500 (half the 2024/25 bill).  

Therefore, Sam will pay a total of £4,500 on 31st January 2026. £3,000 being the actual tax bill for 2024/25 and £1,500, being Sam’s first POA for 2025/26.  

Sam’s second payment on account for 2025/26 of £1,500 will be due on 31st July 2026.  

Sam will now have paid £1,500 in January and £1,500 in July towards the 2025/26 tax liability.  

Budget for your tax bill

If you are required to make POAs, budgeting for your tax bill can be even more important. In the first year they arise, they effectively accelerate your tax payments, and the result is that in your first January, you could be faced with paying 150% of your tax bill, although 50% of it counts as an advance payment for the following year. 

As a rule of thumb, we would recommend that you set aside a quarter of your profits for your tax bill. If you’re a higher rate taxpayer, you may prefer to increase the amount you set aside. 

Need some help?

If you have questions surrounding payments on account or your tax bill, contact our team today on 01234 331777 or use our online contact form. We can discuss with you what your options are and whether you could reduce or defer your tax payments.

Last updated: 4th February 2026