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Self-employed deep guide · Payments on Account · 2026/27

Payments on Account - UK 2026/27 complete guide

Payments on Account (POA) are advance payments toward next year’s Self Assessment tax bill. They catch out almost every new self-employed person because the first SA bill includes two years of tax in a single 12-month period. Once steady-state, POA smooths cash flow - but the transition is the cash-flow shock of most self-employed careers.

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What you need to know: Payments on Account - UK 2026/27 complete guide

Quick answer: UK Payments on Account apply if your annual Self Assessment tax bill exceeds £1,000 and less than 80% of your tax was deducted at source. Two POAs per year: 50% of last year’s tax due by 31 January (alongside the balancing payment for that year), 50% by 31 July . So your…

Key points:

UK Payments on Account apply if your annual Self Assessment tax bill exceeds £1,000 and less than 80% of your tax was deducted at source. Two POAs per year: 50% of last year’s tax due by 31 January (alongside the balancing payment for that year), 50% by 31 July. So your first SA bill typically includes 200% of one year’s tax: 100% balancing payment + 100% first-year POAs. You can apply to reduce POAs via SA303 if you know next year’s tax will be lower.

How Payments on Account work

Year 1 (e.g. 2026/27)First trading yearYou trade from 6 April 2026 - 5 April 2027. No POA paid during this year.
31 Jan 2028First SA filing deadline + balancing payment + 1st POAPay year 1 tax in full PLUS 50% of year 1 tax as 1st POA toward year 2. If year 1 tax was £8,000, you pay £12,000 on this date.
31 Jul 20282nd POA for year 2Pay the other 50% of year 1 tax as 2nd POA. £4,000 in our example.
31 Jan 2029Year 2 SA filing + balancing payment + 1st POA for year 3By now you’ve paid £8,000 in POAs for year 2. Year 2 tax assessed at e.g. £9,000. You pay £1,000 balancing payment + £4,500 first POA for year 3 = £5,500.
The "double bill" shockThe 31 January 2028 payment in our example is £12,000 - more than 1.5x year 1’s tax bill. Many new self-employed people don’t realise this is coming and find themselves financially stuck. Set aside money throughout year 1 for both the balancing payment AND the upcoming POAs.

When POA applies (and when it doesn’t)

POA applies UNLESS:

For most active self-employed taxpayers, POA applies once Self Assessment annual bill crosses £1,000 - which is most full-time self-employed.

Worked example - new sole trader, two years

Olivia, freelance copywriter, becomes self-employed April 2026

Year 1 (2026/27):

  • Profit: £45,000
  • Income tax: £7,486
  • Class 4 NI: £2,257
  • Total Year 1 tax: £9,743

Year 2 (2027/28) - same business, similar profit:

  • Profit: £48,000
  • Total tax: £10,663

Cash flow:

  • 31 Jan 2028: Year 1 balancing payment £9,743 + 1st POA £4,872 (50% of Y1) = £14,615 due
  • 31 Jul 2028: 2nd POA £4,872 = £4,872 due
  • 31 Jan 2029: Year 2 balancing £919 + 1st POA Y3 £5,332 = £6,251 due
  • 31 Jul 2029: 2nd POA £5,332 = £5,332 due

Year 1 alone cost £14,615 in cash on 31 January 2028. By steady state (years 3 onwards), each year settles into the ~£5,000 + £5,000 + ~£900 balancing pattern. The first year is the shock.

Reducing Payments on Account - SA303

If you have strong reason to believe next year’s tax will be lower than this year’s, you can apply to reduce POAs. Two routes:

  1. Online via Personal Tax Account: log in to gov.uk, Self Assessment, "Reduce my payments on account". Fast and free.
  2. Form SA303 by post: printable form, sent to HMRC. Slower (4-6 weeks).
Don’t under-reduceIf you reduce POAs and actual tax turns out higher, HMRC charges interest on the under-payment from the original due date (currently ~7% annualised). Be honest and reasonable - if uncertain, leave POAs at the system-generated 50%.

When to reduce POAs

  • You’re winding down your self-employment (returning to employment, retirement)
  • Your main client has terminated and you don’t have replacement
  • You’re incorporating - moving income from SA to Ltd Co
  • You’ve become eligible for a new reduction (Marriage Allowance, increased pension contributions)
  • One-off prior year boost (large project, sale) that won’t repeat

Strategies to manage the cash-flow timing

Strategy 1: The 25-30% bucketFrom day 1 of self-employment, set aside 25-30% of every payment received into a separate "tax bucket" savings account. By 31 January, you should have enough for the balancing payment AND first POA without surprise.
Strategy 2: File early to know the exact billSelf Assessment opens 6 April for the just-ended tax year. File in April or May, even though payment isn’t due until 31 January. You then know exactly what you owe and can plan precisely. Many self-employed file in late October/November after the early-October registration deadline.
Strategy 3: Use a Time to Pay arrangementIf cash is genuinely insufficient on 31 January, contact HMRC BEFORE the due date to set up a 12-month Time to Pay plan. Interest still accrues at ~7%, but no late-payment surcharges. See our can’t-pay guide.
Strategy 4: Pre-pay POAs into a designated HMRC accountYou can pay POAs earlier than 31 January/31 July if cash flow suits. HMRC credits the payment against the next due POA. Useful if you have a strong cash-flow month and want to remove future obligation.

Does MTD ITSA change Payments on Account?

No - quarterly MTD ITSA submissions do NOT create quarterly tax payments. Tax is still calculated annually, and the 31 January / 31 July POA dates remain.

Quarterly submission vs quarterly paymentFrom April 2026, affected taxpayers must SUBMIT updates quarterly to HMRC, but PAYMENTS continue to follow the existing 31 January / 31 July POA pattern. The two mechanisms are separate. HMRC has indicated it may explore quarterly payments in future but no concrete plans as of May 2026.

Common POA mistakes

Mistake 1: Not budgeting for the year-1 double bill.The 31 January after your first trading year includes 150% of one year’s tax. Many new self-employed are blindsided.
Mistake 2: Treating POA as "next year’s tax".Technically POA is "this year’s tax paid in advance for next year". The accounting language confuses people. What matters: it’s cash out, twice a year, based on last year’s tax.
Mistake 3: Reducing POA aggressively when uncertain.If you reduce POAs but actual tax is similar to last year, HMRC charges interest. Better to over-pay slightly and reclaim the surplus when SA is filed.
Mistake 4: Forgetting to claim POA paid when SA is later filed.HMRC automatically credits POAs paid to your account. If you file SA and the calculator shows the full tax due without showing the POA credits, contact HMRC - the SA system normally pulls POA balances correctly but errors can happen.
Mistake 5: Mixing personal and business tax in cash flow planning.POA covers income tax + Class 4 NI on self-employment income only. PAYE income tax (if you also have employment) is separate. Pension contributions and Gift Aid reduce SA tax bills - factor them in.

Calculate your annual SA bill

The sole trader tax calculator shows annual tax + NI and Payments on Account based on your profit level.

Open the sole trader calculator

Sources and references

Payments on Account framework from gov.uk POA guide. SA303 reduction process at gov.uk reducing POA. Late-payment interest rates from gov.uk HMRC interest rates.

UK Tax Drag is educational and not regulated financial, tax, legal or business advice - see the disclaimer for the full position. Always verify current rates and rules at the original government sources before acting.

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