Handling Payments On Account In Self-Assessment for the 2025-26 Tax Year
- Adil Akhtar
- Jul 23
- 17 min read
The Audio Summary of the Key Points of the Article:
Understanding Payments on Account for the 2025-26 Tax Year
What Are Payments on Account and Why Do They Matter?
Now, if you’re new to Self Assessment, the term “payments on account” might sound like something your accountant mumbles about before sending you a hefty bill. In simple terms, payments on account (POAs) are advance payments you make towards your tax bill for the current tax year, based on what you owed the previous year. They’re HMRC’s way of spreading out your tax liability so you’re not hit with a massive lump sum in January. For the 2025-26 tax year (running from 6 April 2025 to 5 April 2026), these payments are due on 31 January 2026 and 31 July 2026. But here’s the catch: they can feel like a double whammy if you’re not prepared, as you might owe last year’s tax and an advance payment at the same time.
POAs apply if your Self Assessment tax bill for the previous year (2024-25) exceeds £1,000 and less than 80% of your income was taxed at source (e.g., through PAYE). They cover income tax and Class 4 National Insurance Contributions (NICs) for self-employed individuals but exclude things like Capital Gains Tax or student loan repayments. Understanding this system is crucial because getting it wrong can lead to penalties or cash flow headaches.
How Are Payments on Account Calculated?
Let’s break this down with a clear example. Say your 2024-25 tax bill was £4,000, including income tax and Class 4 NICs. HMRC assumes your 2025-26 bill will be similar, so they split it into two POAs of £2,000 each (50% of the previous year’s bill). You pay the first £2,000 by 31 January 2026, alongside any outstanding tax for 2024-25 (called the balancing payment). The second £2,000 is due by 31 July 2026. If your actual 2025-26 bill ends up higher, you’ll owe a balancing payment by 31 January 2027. If it’s lower, you might get a refund.
Here’s a quick table to illustrate:
Tax Year | Total Tax Bill | 1st POA (31 Jan) | 2nd POA (31 Jul) | Balancing Payment (31 Jan Next Year) |
2024-25 | £4,000 | £2,000 (for 2025-26) | £2,000 (for 2025-26) | £0 (if 2025-26 bill is £4,000) |
2025-26 | £5,000 | £2,500 (for 2026-27) | £2,500 (for 2026-27) | £1,000 (to cover shortfall) |
This table assumes your income stays steady or increases. But what if it drops? We’ll get to that later.
Who Needs to Make Payments on Account?
Not everyone in Self Assessment has to deal with POAs. You’re exempt if:
● Your tax bill for 2024-25 was under £1,000.
● At least 80% of your tax was deducted at source (e.g., via PAYE).
● You’re not liable for Class 4 NICs (e.g., your self-employed profits are below the lower limit of £6,725 for 2025-26).
For example, imagine Bronwen, a part-time freelancer from Cardiff. She earns £40,000 from her PAYE job (with £7,000 tax deducted) and £5,000 from freelance work. Her 2024-25 Self Assessment bill is £1,200, but because most of her tax is covered by PAYE, she doesn’t need to make POAs. On the other hand, Idris, a self-employed plumber in Swansea with a £6,000 tax bill, is on the hook for two £3,000 POAs for 2025-26.
Key Deadlines for 2025-26 You Can’t Ignore
Be careful! Missing deadlines can sting. For the 2025-26 tax year, here are the critical dates:
● 5 October 2025: Register for Self Assessment if you’re new to self-employment or have new untaxed income.
● 31 October 2025: Deadline for paper tax returns (though HMRC prefers online filing).
● 31 January 2026: Submit your online tax return for 2024-25, pay any balancing payment, and make the first POA for 2025-26.
● 31 July 2026: Second POA for 2025-26 due.
● 31 January 2027: Final deadline for 2025-26 tax return and any balancing payment, plus the first POA for 2026-27.
Miss these, and you’re looking at a £100 late filing penalty, plus 3-10% of unpaid tax for late payments, depending on the delay. Interest on late payments accrues at 7.75% as of July 2025.
Explanation of the Important Dates for the 2025-26 Tax Year
Here's a breakdown of the key deadlines you need to be aware of for the 2025-26 tax year:
1. 5 October 2025: Self Assessment Registration
Who: Individuals who are newly self-employed or have new sources of untaxed income.
What: Register for Self Assessment with HM Revenue & Customs (HMRC).
Why: If you haven't previously filed a Self Assessment tax return and you've started a new business, become self-employed, or have income that hasn't been taxed at source (e.g., rental income, dividends above a certain threshold), you need to register. This allows HMRC to track your income and ensure you pay the correct amount of tax.
How: You can register for Self Assessment online through the HMRC website. You'll need your National Insurance number and other personal details.
Consequences of Missing the Deadline: Failure to register by this date can result in penalties.
2. 31 October 2025: Paper Tax Return Deadline
Who: Individuals who prefer to file their tax return on paper.
What: Submit your completed paper tax return to HMRC.
Why: While HMRC encourages online filing, you still have the option to submit a paper tax return. However, the deadline for paper returns is earlier than the online deadline.
How: You can download the necessary forms from the HMRC website, complete them, and mail them to the address provided.
Important Note: HMRC strongly recommends filing online as it's more efficient and reduces the risk of errors.
Consequences of Missing the Deadline: Penalties will be applied for late filing.
3. 31 January 2026: Online Tax Return, Balancing Payment, and First Payment on Account
Who: All individuals required to file a Self Assessment tax return.
What:
Submit your online tax return for the 2024-25 tax year.
Pay any outstanding tax (balancing payment) for the 2024-25 tax year.
Make the first Payment on Account (POA) for the 2025-26 tax year.
Why: This is a crucial date for several reasons:
It's the deadline for submitting your tax return online.
You need to pay any tax you owe for the previous tax year (the "balancing payment").
If your tax liability for the previous year was over £1,000, you'll likely need to make Payments on Account towards your tax bill for the current year. These are advance payments based on your previous year's tax liability.
How:
File your tax return online through the HMRC website using your Government Gateway ID and password.
Pay your tax bill online through the HMRC website using a debit card, credit card, or bank transfer.
The amount of your Payments on Account will be calculated by HMRC based on your previous year's tax liability.
Consequences of Missing the Deadline: Late filing and late payment penalties will be applied. Interest will also be charged on late payments.
4. 31 July 2026: Second Payment on Account
Who: Individuals who are making Payments on Account.
What: Make the second Payment on Account (POA) for the 2025-26 tax year.
Why: This is the second installment of your advance tax payments for the current tax year.
How: Pay your tax bill online through the HMRC website using a debit card, credit card, or bank transfer.
Consequences of Missing the Deadline: Interest will be charged on late payments.
5. 31 January 2027: Final Deadline for 2025-26 Tax Return, Balancing Payment, and First Payment on Account
Who: All individuals required to file a Self Assessment tax return.
What:
Final deadline for submitting your online tax return for the 2025-26 tax year (if not already submitted).
Pay any outstanding tax (balancing payment) for the 2025-26 tax year.
Make the first Payment on Account (POA) for the 2026-27 tax year.
Why: This date serves as a final opportunity to settle your tax obligations for the 2025-26 tax year and begin making advance payments for the following year.
How:
File your tax return online through the HMRC website using your Government Gateway ID and password.
Pay your tax bill online through the HMRC website using a debit card, credit card, or bank transfer.
The amount of your Payments on Account will be calculated by HMRC based on your previous year's tax liability.
Consequences of Missing the Deadline: Significant penalties will be applied for late filing and late payment. Interest will also be charged on late payments.
Why Payments on Account Can Feel Like a Trap
Now, it shouldn’t be a surprise that POAs can catch people off guard, especially first-time filers. Imagine you’re a sole trader who started your business in 2024. Your first tax bill for 2024-25 is £3,000, due by 31 January 2026. But HMRC also wants a £1,500 POA for 2025-26, making your total payment £4,500. That’s a lot to swallow if you haven’t saved up. The system assumes your income will stay the same, which isn’t always true for freelancers or small business owners whose earnings fluctuate.
Take Siobhan, a graphic designer from Bristol. Her 2024-25 tax bill was £5,000 because of a bumper year. She paid £2,500 on 31 January 2025 and another £2,500 on 31 July 2025 as POAs for 2025-26. But in 2025-26, her income dropped to £20,000 due to fewer clients, and her tax bill was only £2,000. She overpaid by £3,000 and had to wait until January 2027 for a refund. This kind of cash flow squeeze is why planning ahead is essential.
Practical Strategies for Managing Payments on Account in 2025-26
How Can You Calculate Your Payments on Account Accurately?
Now, let’s get into the nitty-gritty of working out your payments on account (POAs) without losing sleep over it. The starting point is your 2024-25 Self Assessment tax bill, which you can find on your tax return or by checking your tax account on GOV.UK. HMRC uses this figure to estimate your 2025-26 liability, splitting it into two equal payments. For instance, if your 2024-25 bill was £6,000 (including income tax and Class 4 NICs), each POA for 2025-26 is £3,000. Sounds simple, right? But here’s where it gets tricky: your actual income for 2025-26 might not match last year’s, especially if you’re a freelancer or small business owner.
To calculate accurately, review your 2024-25 tax return line by line. Check your taxable income (after deductions like business expenses) and apply the 2025-26 tax rates: 20% basic rate (£12,570–£50,270), 40% higher rate (£50,271–£125,140), and 45% additional rate (over £125,140). For Class 4 NICs, it’s 9% on profits between £6,725 and £50,270, and 2% above that. If you’re unsure, HMRC’s online calculator or software like FreeAgent can help, but always double-check with your records.
What If Your Income Drops? Reducing Payments on Account
So, the question is: what happens if you know your 2025-26 income will be lower than 2024-25? Maybe you lost a big client, or you’re scaling back your business. You can apply to reduce your POAs through your GOV.UK tax account or by completing form SA303. Be realistic when estimating your income, as underpaying can lead to interest charges at 7.75% (as of July 2025). For example, Eleri, a self-employed photographer from Wrexham, had a £10,000 tax bill in 2024-25 due to a one-off project. Expecting only £4,000 in tax for 2025-26, she applied to reduce her POAs from £5,000 each to £2,000 each, saving £6,000 in cash flow upfront.
Here’s how to approach it:
● Estimate your income: Use invoices, contracts, or past bank statements to project 2025-26 earnings.
● Deduct expenses: Factor in allowable business expenses, like travel or equipment, to lower taxable profits.
● Apply early: Submit your reduction request before 31 January 2026 to adjust the first POA.
● Keep records: If HMRC queries your estimate, you’ll need evidence like client contracts or sales forecasts.
Step-by-Step Guide to Making Payments on Account
None of us loves parting with cash, but paying your POAs on time keeps HMRC off your back. Here’s a step-by-step guide to get it right for 2025-26:
Check your tax bill: Log into your GOV.UK tax account after filing your 2024-25 return to see if POAs apply.
Confirm amounts: HMRC will notify you of your POA amounts (50% of your 2024-25 bill) via letter or online.
Plan your budget: Set aside funds monthly to cover the 31 January 2026 and 31 July 2026 payments.
Choose a payment method: Pay via bank transfer, debit card, or Direct Debit through your HMRC online account. Bank transfers need your Unique Taxpayer Reference (UTR) and the correct HMRC account details.
Pay on time: First POA is due 31 January 2026, second on 31 July 2026. Late payments incur 7.75% interest.
Monitor your account: After paying, check your tax account to ensure payments are recorded correctly.
File your 2025-26 return: By 31 January 2027, submit your return to settle any balancing payment or claim a refund.
This guide assumes steady income, but if your earnings fluctuate, revisit the reduction process above.
How to Handle Cash Flow Challenges with POAs
Be careful! POAs can strain your finances, especially if you’re a sole trader or small business owner. Imagine Owain, a café owner in Aberystwyth. His 2024-25 tax bill was £8,000, so he owes £4,000 on 31 January 2026 (plus any balancing payment) and another £4,000 by 31 July 2026. With rising costs in 2025, this squeezes his cash flow. To manage this, Owain sets up a sinking fund, saving £666 monthly (£8,000 ÷ 12) in a separate account. Other strategies include:
● Spread payments: Use HMRC’s Time to Pay arrangement if you can’t pay in full (apply via GOV.UK).
● Adjust business expenses: Claim all allowable deductions, like utilities or marketing costs, to lower your taxable income.
● Forecast cash flow: Use tools like Xero to track income and expenses, ensuring you’re ready for tax deadlines.
What Happens If You Overpay or Underpay?
Now consider this: If you overpay your POAs, you’re not stuck waiting forever for a refund. If your 2025-26 tax bill is lower than expected, HMRC will refund the excess after you file your return by 31 January 2027. For example, Sioned, a landlord in Bangor, paid £6,000 in POAs based on a £12,000 2024-25 bill. Her 2025-26 bill was only £8,000, so she got a £4,000 refund. Conversely, underpaying means a balancing payment plus interest. If Sioned had reduced her POAs too aggressively to £2,000 each, she’d owe £4,000 plus interest by January 2027.
Here’s a table to show the impact:
Scenario | 2024-25 Tax Bill | POAs Paid | 2025-26 Tax Bill | Outcome |
Overpayment | £12,000 | £6,000 x 2 | £8,000 | £4,000 refund |
Underpayment | £12,000 | £2,000 x 2 | £8,000 | £4,000 + interest due |
Rare Scenarios: New Businesses and PAYE Transitions
Now, it shouldn’t be a surprise that new businesses or those moving from PAYE to self-employment face unique challenges. If you started trading in 2025, you won’t have a 2024-25 tax bill, so no POAs are due until your first return in January 2026. But brace yourself: your first payment could include a full year’s tax plus POAs for 2026-27. For example, Gwilym, who launched a consultancy in Cardiff in April 2025, earns £50,000 in 2025-26. His tax bill (around £10,000) and first POA (£5,000) hit in January 2027, totaling £15,000. To avoid this shock, Gwilym saves 20-30% of his income monthly.
If you’re transitioning from PAYE, like Rhiannon, who left her job to freelance in 2025, you might face an emergency tax code initially, overpaying tax through PAYE. She reclaimed this via Self Assessment but still had to budget for POAs based on her freelance income. Always notify HMRC early to adjust your tax code and avoid surprises.
Key Takeaways and Advanced Tips for Payments on Account in 2025-26
How Can You Optimise Your Tax Planning for POAs?
Now, let’s talk about getting ahead of the game with payments on account (POAs). Smart tax planning can save you stress and money, especially if your income fluctuates or you’re running a small business. Start by forecasting your 2025-26 income as early as possible—ideally by mid-2025. Use accounting software or a simple spreadsheet to track revenue and expenses monthly. This helps you estimate your tax liability and decide whether to reduce your POAs if your income drops. For example, Dafydd, a self-employed carpenter from Newport, noticed his bookings slowed in 2025. By projecting a £3,000 tax bill (down from £7,000 in 2024-25), he reduced his POAs from £3,500 to £1,500 each, freeing up £4,000 for business investments.
Another tip: maximise allowable deductions. Claim everything from office supplies to professional subscriptions to lower your taxable profits. Check HMRC’s guidance on allowable expenses to ensure you’re not missing out. If you’re VAT-registered, consider the Flat Rate Scheme to simplify accounting and potentially reduce your tax burden, but crunch the numbers first to ensure it benefits you.
What Are the Risks of Getting POAs Wrong?
Be careful! Misjudging your POAs can land you in hot water. Underpaying—say, by reducing POAs too aggressively—means you’ll owe a balancing payment plus 7.75% interest by 31 January 2027. Overpaying isn’t much better, as it ties up cash you could use elsewhere. Take Cerys, a freelance writer in Carmarthen. She overestimated her 2025-26 income and paid £5,000 in POAs when her actual bill was £3,000. The £2,000 overpayment was refunded, but only after her 2025-26 return, leaving her short on cash for months.
To avoid these risks:
● Regularly review income: Update your estimates quarterly to reflect changes in your business.
● Consult an accountant: For complex cases, like partnerships or rental income, professional advice can prevent costly errors.
● Set up alerts: Use HMRC’s online account or calendar reminders for deadlines like 31 January and 31 July 2026.
How Do POAs Affect Different Types of Taxpayers?
Now consider this: POAs impact various taxpayers differently. Sole traders, like Aled, a landscaper in Gwynedd, often face high POAs due to unpredictable income. He mitigates this by saving 25% of each invoice in a separate account. Landlords, on the other hand, might have steadier rental income but face POAs if their tax bill exceeds £1,000. For example, Nia, who rents out a flat in Swansea, had a £4,000 bill in 2024-25. She pays £2,000 POAs for 2025-26 but claims mortgage interest relief to lower her liability.
Partnerships add complexity. If you’re in a partnership, each partner’s POA is based on their share of the partnership’s tax bill. For instance, Llinos and Rhys, who run a catering business in Powys, split their £10,000 2024-25 tax bill equally. Each pays £2,500 per POA for 2025-26, but they must coordinate to ensure the partnership return is accurate. Always check HMRC’s partnership tax rules to stay compliant.
What Tools and Resources Can Help with POAs?
Hey, don’t sweat it! There are plenty of tools to make POAs manageable. HMRC’s online tax account is your first stop for checking bills, making payments, or requesting reductions. Free tools like Wave or QuickBooks can track income and expenses, helping you forecast your tax liability. For a quick estimate, use this table to gauge your 2025-26 POAs based on 2024-25 income:
2024-25 Taxable Income | Estimated Tax + NICs | POA (Each) | Total POAs |
£20,000 | £2,555 | £1,277.50 | £2,555 |
£50,000 | £9,432 | £4,716 | £9,432 |
£100,000 | £29,432 | £14,716 | £29,432 |
Note: Assumes basic personal allowance (£12,570) and standard Class 4 NIC rates.
If you’re tech-savvy, consider setting up automated alerts or Direct Debit with HMRC to avoid missing payments. For complex cases, an accountant’s fee (often £500–£2,000 annually) can be worth it for peace of mind.
Summary of the Most Important Points
Payments on account (POAs) are advance tax payments for 2025-26, due 31 January and 31 July 2026, based on your 2024-25 tax bill.
You’re exempt from POAs if your 2024-25 tax bill is under £1,000 or 80% of your income is taxed via PAYE.
Each POA is 50% of your previous year’s tax and Class 4 NICs, with any difference settled by 31 January 2027.
Missing deadlines incurs a £100 fine for late filing and 7.75% interest on late payments.
You can reduce POAs via GOV.UK if your 2025-26 income will be lower, but underpaying risks interest.
Use a sinking fund or Time to Pay to manage cash flow challenges from POAs.
Overpaying POAs results in a refund after your 2025-26 return, but ties up cash until then.
New businesses face no POAs until their first return, but must budget for a large payment including the next year’s POA.
Claim all allowable expenses to lower your taxable income and reduce POAs.
Use HMRC’s online tools or accounting software to track and manage your tax obligations.
FAQs
Q1: What is the purpose of payments on account in the UK Self Assessment system?
A1: Payments on account are advance payments towards a taxpayer’s income tax and Class 4 National Insurance contributions for the current tax year, based on the previous year’s tax bill, to spread out tax payments and avoid a large lump sum at year-end.
Q2: Who is required to make payments on account?
A2: Taxpayers must make payments on account if their previous year’s Self Assessment tax bill exceeds £1,000 and less than 80% of their income was taxed at source, such as through PAYE.
Q3: When are payments on account due for the 2025-26 tax year?
A3: The first payment on account is due by 31 January 2026, and the second by 31 July 2026, with any balancing payment due by 31 January 2027.
Q4: Can taxpayers reduce their payments on account if their income decreases?
A4: Yes, taxpayers can apply to reduce payments on account through their GOV.UK tax account or form SA303 if they expect a lower tax bill, but they must estimate accurately to avoid interest on underpayments.
Q5: What happens if a taxpayer misses a payment on account deadline?
A5: Missing a payment on account deadline incurs interest at 7.75% on the overdue amount, and late filing of the tax return can result in a £100 penalty.
Q6: How does HMRC calculate payments on account?
A6: HMRC calculates each payment on account as 50% of the previous year’s income tax and Class 4 National Insurance bill, assuming the current year’s liability will be similar.
Q7: Are payments on account required for Capital Gains Tax?
A7: No, payments on account only cover income tax and Class 4 National Insurance contributions, not Capital Gains Tax or other liabilities like student loan repayments.
Q8: Can new self-employed individuals avoid payments on account?
A8: New self-employed individuals with no prior tax bill are exempt from payments on account until their first Self Assessment return, but they may face a large payment including the next year’s advance.
Q9: What payment methods are available for payments on account?
A9: Taxpayers can pay via bank transfer, debit card, or Direct Debit through their HMRC online account, using their Unique Taxpayer Reference (UTR).
Q10: What is a balancing payment in the context of Self Assessment?
A10: A balancing payment is the difference between the total tax owed for the tax year and the payments on account already made, due by 31 January following the tax year.
Q11: Can taxpayers get a refund if they overpay their payments on account?
A11: Yes, if the actual tax bill is lower than the payments on account, HMRC refunds the excess after the tax return is filed, typically by 31 January.
Q12: How can taxpayers check if they need to make payments on account?
A12: Taxpayers can check their tax bill and payment on account requirements by logging into their GOV.UK tax account after filing their previous year’s return.
Q13: What is the interest rate on late payments on account?
A13: The interest rate on late payments on account is 7.75%, calculated daily from the due date until payment is made.
Q14: Can taxpayers set up a payment plan for payments on account?
A14: Yes, taxpayers struggling to pay can arrange a Time to Pay plan with HMRC to spread payments over time, subject to approval.
Q15: How do payments on account affect cash flow for small businesses?
A15: Payments on account can strain cash flow, requiring small businesses to save regularly or use tools like sinking funds to cover the January and July deadlines.
Q16: Are payments on account required for partnerships?
A16: Yes, each partner in a partnership must make payments on account based on their share of the partnership’s tax bill, as reported in the partnership return.
Q17: Can taxpayers claim expenses to reduce their payments on account?
A17: Claiming allowable business expenses lowers taxable income, which can reduce the tax bill and, consequently, future payments on account if adjusted.
Q18: What should taxpayers do if they transition from PAYE to self-employment?
A18: Taxpayers should notify HMRC early to adjust their tax code and budget for potential payments on account based on their new self-employed income.
Q19: How do payments on account work for landlords?
A19: Landlords with rental income exceeding £1,000 in tax liability must make payments on account, unless most of their income is taxed via PAYE, and can reduce their bill with allowable deductions like mortgage interest.
Q20: Can taxpayers use accounting software to manage payments on account?
A20: Yes, software like Wave, QuickBooks, or FreeAgent can track income and expenses, helping taxpayers forecast their tax liability and prepare for payments on account.
About The Author:
Adil Akhtar, ACMA, CGMA, CEO and Chief Accountant of Pro Tax Accountant, is an esteemed tax blog writer with over 10 years of expertise in navigating complex tax matters. For more than three years, his insightful blogs have empowered UK taxpayers with clear, actionable advice. Leading Advantax Accountants as well, Adil blends technical prowess with a passion for demystifying finance, cementing his reputation as a trusted authority in tax education.
Email: adilacma@icloud.com
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