Pillar Guide · Updated May 2026

UK Self-Employed Payments on Account: How POA Works in 2025/26

Around 5 million UK Self Assessment taxpayers — mostly sole traders, landlords, company directors and higher-rate PAYE earners with side income — submit annual SA returns. Of these around 3 million fall into the Payments on Account (POA) regime: HMRC's requirement to pay two advance 50% instalments toward next year's tax bill if the previous year's liability exceeded £1,000 and less than 80% was deducted at source. The dates — 31 January and 31 July — create a rolling cycle that new sole traders find brutal in year two, when the first January payment combines a balancing payment for year one with the first POA for year two. This pillar guide explains the mechanics, the 80% / £1,000 trigger test, how to reduce POAs via SA303 if income drops, the 7.5% late-payment interest rate, HMRC Time to Pay, and the second-year cash flow shock with worked examples for a £15,000 first-year sole trader.

Last updated: 24 May 2026Last reviewed: 24 May 2026How we verify

POA Mechanics

Payments on Account exist because Self Assessment is, by default, paid in arrears. Without POA a sole trader earning £40,000 in 2025/26 would not pay any tax until 31 January 2027 — more than 21 months after the start of the income year. HMRC, like most tax authorities, wants tax broadly aligned with the year in which income is earned. POA achieves that by spreading liability over two equal instalments paid during the income year itself.

The amount of each POA is fixed at 50% of the previous year's combined Income Tax and Class 4 NI liability. So if your 2024/25 SA bill was £8,000 (Income Tax £6,500 + Class 4 NI £1,500), HMRC sets two 2025/26 POAs of £4,000 each. These are paid on 31 January 2026 (alongside the balancing payment for 2024/25) and 31 July 2026. After filing the 2025/26 return in late 2026 or early 2027, the actual liability is calculated and any difference settled as a balancing payment on 31 January 2027 — same date as the first POA for 2026/27. The cycle continues indefinitely.

Class 2 NI (the £3.45/week flat NI for self-employed), Capital Gains Tax, dividend tax and Student Loan repayments are excluded from the POA calculation but are still paid via the balancing payment on 31 January each year. So the 31 January bill in any given year combines several elements: balancing payment for prior year (including CGT, dividend tax, Class 2, SL), plus first POA for current year (just Income Tax + Class 4 NI). For complex cases the January bill can be sizeable.

The £1,000 / 80% Trigger

POA does not apply to everyone in SA. The trigger requires BOTH of these conditions to be true based on the previous year's return:

Total tax liability (Income Tax + Class 4 NI) was more than £1,000.
Less than 80% of that liability was already deducted at source through PAYE, CIS, dividend or interest withholding, or other automatic mechanisms.

The 80% test is the more important filter. It exempts people whose self-employment or other untaxed income is small relative to their main PAYE-taxed employment. A consultant earning £60,000 PAYE plus £6,000 of casual freelance work with a £500 SA balancing payment is outside POA — the £500 is under the £1,000 threshold. A landlord earning £45,000 PAYE plus £15,000 of rental income with a £2,800 SA balancing payment may still be outside POA if their PAYE deductions cover 80% of their total liability — possible if their employment income covers most of the higher-rate band.

The first-year self-employed entrant nearly always falls into POA because they typically have zero PAYE in the year they go self-employed (or PAYE only for part of the year). This creates the “second-year cash flow shock”: the first SA return is filed in late 2026 for 2025/26 income, and the bill due 31 January 2027 includes the full 2025/26 liability plus the first POA for 2026/27 (50% of same) — effectively 150% of one year's tax in one payment.

Dates and Cycle

The Self Assessment year aligns with the UK tax year (6 April to 5 April). For the 2025/26 tax year:

Date	Payment	Reference year
31 Jan 2026	Balancing payment 2024/25 + first POA 2025/26	2024/25 + 2025/26
31 Jul 2026	Second POA 2025/26	2025/26
5 Oct 2026	New SA registration deadline (first-year)	2025/26
31 Oct 2026	Paper SA filing deadline 2025/26	2025/26
31 Jan 2027	Online SA filing + Balancing 2025/26 + first POA 2026/27	2025/26 + 2026/27
31 Jul 2027	Second POA 2026/27	2026/27

The cycle is self-perpetuating: every 31 January and every 31 July you owe a POA based on the most recently filed year. The only ways out are (i) actual liability drops below the £1,000 / 80% threshold (e.g. you take a PAYE job and wind down self employment), or (ii) you formally tell HMRC you have ceased self-employment and submit a final SA return. Until one of those happens, expect a payment due every six months indefinitely.

Balancing Payment

The balancing payment reconciles the actual tax liability for the year against the POAs already paid. Calculated by HMRC's SA system when you file the return, it can be positive (you owe more) or negative (refund due). It is always due 31 January following the tax year end — the same date as the SA filing deadline.

Worked example. 2025/26 actual SA liability: £9,500 Income Tax + Class 4 NI + £300 Class 2 NI + £200 dividend tax = £10,000 total. POAs already paid: £4,000 (31 Jan 2026) + £4,000 (31 Jul 2026) = £8,000. Balancing payment due 31 January 2027: £10,000 − £8,000 = £2,000. Plus first POA for 2026/27: 50% × (£9,500 + £200 of Income Tax / Class 4 only, excluding Class 2 NI and dividend tax) = roughly £4,750. Total 31 January 2027 bill: £6,750.

The balancing payment is the moment SA filers discover whether they over- or under-paid via POA. Most years the variance is modest — perhaps ±£500-£1,500 on a £10,000 bill. Years with material business growth produce large positive balances; years with shrinkage produce refunds that can be set off against the next POA or paid by HMRC into your bank account. The balancing payment never includes Class 2 NI separately (it is calculated as part of SA) or PAYE tax already deducted by an employer (that's already with HMRC).

Reducing POA via SA303

If you reasonably believe your current-year tax bill will be lower than last year's — because business has slowed, you have started PAYE employment, you have new significant allowable expenses, or your income mix has changed — you can apply to reduce both POA instalments by filing form SA303. Online: log into the Personal Tax Account, navigate to Self Assessment, click “Reduce your payments on account”. Paper: download SA303 from gov.uk, fill in and post.

You specify a new lower estimate of the current-year liability; HMRC reduces both POAs to 50% of that estimate. The change can be made any time before the second POA date (31 July). If the first POA has already been paid based on the higher figure, HMRC refunds the difference (or sets it off against the second POA). If the second POA is reduced, you only pay the lower amount on 31 July.

The risk: if your actual liability turns out higher than your reduced estimate, HMRC charges late-payment interest at 7.5% (2025 rate) on the under-paid amount from the original POA dates until the balancing payment date. There is no additional surcharge for honest under-estimates. However, if HMRC concludes the SA303 was “negligently or fraudulently” submitted (e.g. you reduced POAs to near-zero with no basis for the reduction), it can charge tax-geared penalties of 30-100% of the under-payment. The practical advice: reduce conservatively, typically by 15-30% rather than aggressively, and only if you have clear evidence that income has dropped. Keep documentation of the reason for the reduction in case HMRC asks.

Interest, Penalties and Time to Pay

HMRC's late-payment interest rate is set at Bank of England Base Rate + 2.5 percentage points. With BoE Base at 5.00% in early 2025, the late-payment rate is 7.50% (rebased in line with BoE moves). Interest accrues daily from the original due date to the day of full payment. It is not capped. Refund interest (HMRC paying you back) is base rate minus 1pp, so 4.00% — a 3.5pp spread that makes overpayment expensive.

Surcharge penalties apply on top of interest:

30 days late: 5% surcharge on unpaid amount.
6 months late: further 5% surcharge.
12 months late: further 5% surcharge.
Late filing: £100 immediately on missed 31 January, then £10/day after 3 months (max £900), then £300 (or 5% of tax, whichever higher) at 6 months, and the same again at 12 months.

HMRC Time to Pay (TTP) lets struggling taxpayers spread the bill over up to 12 months by direct debit. For bills under £30,000 the application is online via the Personal Tax Account; approval is typically automated and fast (a few weeks). Larger bills require a phone application to HMRC's Business Payment Support Service. Interest still accrues during the TTP plan but surcharges are waived provided you apply BEFORE the 30-day surcharge date. Default on a TTP plan and HMRC may cancel it and demand the full balance plus interest and surcharges. TTP is available once a year by default; multiple successive plans for the same taxpayer require demonstrating exceptional circumstances.

Worked Example: First vs Second Year

Consider a sole trader who starts self-employment on 6 April 2025 and earns £15,000 of taxable profit in their first year 2025/26 (and again £15,000 in 2026/27). For simplicity assume no PAYE income, no other income, no expenses already counted. England rates apply.

Year	Profit	Income Tax	Class 4 NI (6%)	SA tax owed
2025/26	£15,000	£486	£146	£632
2026/27	£15,000	£486	£146	£632

At £15,000 profit the SA tax bill of £632 is below £1,000, so this sole trader is NOT in POA. Their entire £632 for 2025/26 is paid as a single balancing payment on 31 January 2027. No advance instalments, no cash flow shock. This is the typical first-year experience for low-income sole traders.

Now consider a sole trader who earns £40,000 profit in 2025/26 and £40,000 again in 2026/27. England rates:

Date	Payment due	Amount
31 Jan 2027	Balancing 2025/26 (full year)	~£6,930
31 Jan 2027	First POA 2026/27 (50% of 2025/26)	~£3,465
31 Jan 2027 TOTAL	Combined bill	~£10,395
31 Jul 2027	Second POA 2026/27	~£3,465
31 Jan 2028	Balancing 2026/27 (nil if profit stable)	£0
31 Jan 2028	First POA 2027/28	~£3,465

The second-year cash flow shock is clear: in January 2027 the sole trader owes £10,395 in a single payment — 150% of one year's tax. From 2028 onwards the January bill is just the next POA (£3,465), because the balancing payment is typically near zero on stable income. Always reserve at least 35-40% of every invoice in a separate savings account from day one — at £40k profit the total tax and NI exceeds 17% of gross, but the lumpiness of the first January bill makes under-saving brutal. Many sole traders use TTP for the first big January once and never again.

MTD ITSA from April 2026

Making Tax Digital for Income Tax Self Assessment (MTD ITSA) is HMRC's long-running modernisation programme. After multiple delays the rollout begins April 2026 for self-employed and landlord taxpayers with combined trading and property income above £50,000. The £30,000-£50,000 group joins April 2027. Below £30,000 the rollout is paused indefinitely.

MTD ITSA requires quarterly digital updates to HMRC plus a final declaration at year-end. Software must be MTD-compatible — Excel spreadsheets are not allowed unless paired with bridging software. The administrative burden is real; smaller traders are expected to spend 1-2 hours per quarter on submissions, larger ones materially more.

Important: MTD ITSA does NOT change Payments on Account. The 31 January / 31 July dates, the 50% instalments, the £1,000 / 80% triggers, the SA303 reduction process — all unchanged. The quarterly updates inform HMRC of progress but do not affect payment timing. HMRC consulted on real-time payments aligned with quarterly reporting but did not legislate. So MTD ITSA filers continue with the same POA cycle, just with extra reporting overhead. Many advisers expect a future consultation will eventually move to quarterly payments, but no timeline has been announced as of 2025.

Official References

FAQs

What are Payments on Account?

Payments on Account (POA) are advance instalments toward the next tax year's Self Assessment bill. HMRC requires them if last year's tax liability was more than £1,000 and less than 80% of that liability was already deducted at source (e.g. PAYE, CIS). Both conditions must be true. Each instalment equals 50% of the previous year's tax bill (Income Tax + Class 4 NI, but excluding Class 2 NI, Capital Gains Tax and Student Loan repayments). They are due on 31 January (same date as the balancing payment for the previous year) and 31 July. A balancing payment then settles any over- or under-estimate when the actual bill is calculated.

When are Payments on Account due?

Two dates each tax year. The first POA is due 31 January — the same date as the balancing payment for the previous tax year. So on 31 January 2027 a self-employed taxpayer pays (i) any balancing payment for 2025/26 and (ii) the first POA for 2026/27 = 50% of 2025/26 liability. The second POA is due 31 July 2027 = the other 50% of 2025/26 liability, paid toward 2026/27. The final balancing payment for 2026/27 is then due 31 January 2028, alongside the first POA for 2027/28. This creates a permanent rolling cycle once you are in the POA regime.

How is the POA amount calculated?

Each POA is exactly 50% of the previous year's Income Tax plus Class 4 NI combined liability. So if your 2025/26 SA assessment was £8,000 (Income Tax £6,500 + Class 4 NI £1,500), your two 2026/27 POAs are £4,000 each, due 31 January and 31 July 2027. The figure is set when you file your SA return, so it depends entirely on what you reported for the previous year. If your business income drops materially in the current year you can apply to reduce the POA using form SA303 (see separate FAQ). If your income grows, the POAs may under-collect and you owe a balancing payment in January.

What is the £1,000 / 80% trigger rule?

POA is triggered only if BOTH of these are true: (i) your last-year SA tax bill (Income Tax + Class 4 NI) was more than £1,000; AND (ii) less than 80% of your last-year tax was deducted at source. The 80% test captures employees who do a small amount of self-employment alongside PAYE — if most of the year's tax was already in PAYE deductions, no POA is needed. Both conditions must be met. So a sole trader earning £25,000 with £3,500 tax bill is in POA (over £1,000, no PAYE deduction). An employee earning £45,000 PAYE plus £5,000 self-employment with a £800 SA balancing payment is NOT in POA (under £1,000 or over 80% withheld). The rule keeps small-balance taxpayers out of the system.

Can I reduce my Payments on Account?

Yes — file form SA303 (online via the Personal Tax Account or on paper) to ask HMRC to reduce both POA instalments. You must reasonably believe your tax bill for the current year will be lower than the previous year (e.g. business has slowed, you have moved into PAYE employment, or you have material new expenses). Specify the lower amount and the reason. HMRC accepts most reasonable requests automatically. The risk: if your actual tax bill turns out higher than your reduced estimate, HMRC charges interest at 7.5% (2025 rate) on the under-payment plus a potential penalty if HMRC believes you reduced “negligently or fraudulently”. Be honest and conservative — typically reduce by 20-30% rather than aggressively.

What is the balancing payment?

The balancing payment is the difference between your actual tax liability for the year and the two POAs you have already paid. Calculated when you file your SA return (deadline 31 January following the tax year end), it is due on the same 31 January date. If your actual bill is higher than your POAs, you owe the difference. If it is lower, HMRC refunds it (by cheque, bank transfer, or set-off against the next POA). Example: 2025/26 actual liability £9,500, POAs paid £4,000 + £4,000 = £8,000. Balancing payment due 31 January 2027: £1,500. Plus first POA for 2026/27 (50% of £9,500 = £4,750), giving a total 31 January bill of £6,250.

What interest does HMRC charge on late or under-paid POA?

HMRC's late-payment interest rate is set at Bank of England Base Rate + 2.5 percentage points. With base rate at 5.00% in early 2025, the late-payment interest rate is 7.50%, charged daily on the unpaid balance from the due date. Repayment interest (HMRC paying you for refunds) is base rate minus 1pp, so 4.00% — a 3.5pp spread. Interest runs from the due date until full payment. There are no caps. A £4,000 POA unpaid for 6 months attracts roughly £150 of interest. Penalties also apply if the tax remains unpaid after 30 days (5% surcharge), 6 months (further 5%) and 12 months (further 5%).

What is HMRC Time to Pay?

Time to Pay (TTP) is HMRC's formal payment-plan facility for individuals and businesses who cannot meet their SA tax bill on time. For bills up to £30,000 the application is online via your Personal Tax Account — typically approved within a few weeks if eligibility is straightforward (no other unresolved tax debts, less than 60 days late). HMRC can spread the bill over up to 12 months by direct debit. Interest still accrues at the late-payment rate (7.5%) but penalties are waived if the TTP is agreed before the surcharge date. For larger bills or complex situations apply by phone to HMRC's Business Payment Support Service (0300 200 3835).

Does Capital Gains Tax or dividend tax go into POA?

No. POA is calculated on the previous year's Income Tax (employment and trading) plus Class 4 NI only. Capital Gains Tax, dividend income tax (within SA), Class 2 NI and Student Loan repayments are excluded from the POA calculation. They appear instead in the balancing payment due 31 January. CGT in particular is excluded because gains can be highly variable year-to-year — putting them in POA would create misleading future projections. The exclusion has historically been seen as a small win for SA filers with significant non-trading income.

How does MTD ITSA affect Payments on Account?

Making Tax Digital for Income Tax Self Assessment (MTD ITSA) goes live from April 2026 for self-employed individuals and landlords with combined trading and property income above £50,000, and from April 2027 for the £30,000-£50,000 group. Under MTD ITSA, affected taxpayers must submit quarterly digital updates throughout the year plus a year-end Final Declaration. POA mechanics are NOT changed by MTD ITSA — the same 31 January / 31 July dates, the same 50% instalments, the same £1,000 / 80% triggers apply. The change is purely in reporting frequency, not in payment frequency. HMRC consulted on real-time payments aligned with quarterly reporting but has not legislated for this.

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About the author

Emma Clarke

UK Tax Writer

Emma Clarke has been writing about UK personal tax since 2018, with a particular focus on Self Assessment, PAYE coding and the practical mechanics of how HMRC actually applies the rules to ordinary salaries. Her work concentrates on translating the dense language of HMRC manuals and Finance Act schedules into worked examples that show, pound by pound, how income tax and National Insurance reduce a gross salary to the figure that lands in a UK bank account. Emma covers the full PAYE lifecycle: tax codes (1257L, BR, K codes, emergency codes), the Marriage Allowance, the High Income Child Benefit Charge, salary sacrifice arrangements and their effect on pensionable pay, the Apprenticeship Levy, and the differences between the rUK and Scottish income-tax regimes. She is particularly interested in the edge cases that catch PAYE employees out — the £100,000 personal-allowance taper, the 60% effective marginal rate it creates, and the interaction between student-loan plans and pension contributions. Every figure in Emma's articles is verified against the current HMRC rates pages and worked through a Self Assessment calculation by hand before publication. She writes to CalcHub's editorial standards: primary-source citations, plain English, no promotional language, and clear "this is general information, not financial advice" disclaimers where appropriate.

Personal-finance writer since 2018
UK tax specialism — PAYE, Self Assessment, National Insurance
Writes to CalcHub editorial standards (primary-source citation, annual review)

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Disclaimer: HMRC interest rates, deadlines and surcharge structures change in line with Bank of England base rate and at Budget. Figures here reflect 2025/26. Always refer to gov.uk and seek professional advice if you cannot meet a payment date.