Payments on Account Explained (Simple Guide for Sole Traders)
Quick Answer
Payments on Account (POA) are advance payments towards next year's tax bill. If your Self Assessment bill is over £1,000 (and most of it isn't covered by PAYE), HMRC asks you to pay half in January and half in July. Many first-time filers get caught off guard because January includes both the current year's bill and the first payment for next year.
Target Searches
- payments on account meaning
- what are payments on account hmrc
- why am I paying tax twice self employed
- first self assessment bill shock
- payments on account explained uk
- how to budget for payments on account
- can I reduce payments on account
- self employed tax bill too high
- balancing payment self assessment
- do I have to pay in January and July
What Are Payments on Account?
When you submit your Self Assessment and owe more than £1,000, HMRC assumes your income will be similar next year. Instead of waiting until the following January to collect it all, they ask for two advance payments:
- First Payment on Account – due 31 January
- Second Payment on Account – due 31 July
Each payment is 50% of your previous year's tax bill.
Think of it as a forced savings plan. HMRC is collecting next year's tax in instalments.
Who Has to Pay Them?
You'll usually need to make Payments on Account if:
- Your Self Assessment tax bill was more than £1,000, AND
- Less than 80% of your tax was collected at source (e.g., through PAYE)
If you're purely self-employed with no PAYE income, you'll almost certainly pay POA once your bill crosses £1,000.
The First-Time Filer Surprise
This is where people get caught out.
If you've never filed Self Assessment before, you won't have made any Payments on Account yet. That means your first January bill includes:
- Your full tax bill for the year just ended
- Plus your first Payment on Account for the coming year
Example: Your first SA bill is £5,000. In January, you'd pay:
- £5,000 (year just ended)
- £2,500 (first POA for next year)
- Total: £7,500
Then in July, you'd pay another £2,500.
No wonder people say "I got hit twice!"
Worked Example
Year 1 (first Self Assessment):
- 2023/24 tax bill: £6,000
- No prior POA paid
31 January 2025:
- £6,000 (balancing payment for 2023/24)
- £3,000 (first POA for 2024/25)
- Total: £9,000
31 July 2025:
- £3,000 (second POA for 2024/25)
Year 2 (ongoing):
If your 2024/25 bill ends up being £7,000, you've already paid £6,000 in POA (£3,000 + £3,000). You'd owe a balancing payment of £1,000 in January 2026, plus your next set of POA.
If your bill is less than what you've paid, you'd get a refund or credit.
How to Budget for Payments on Account
Option 1: Set aside more from the start
Instead of saving just enough for your current year's tax, add an extra 50% buffer. That way, you're always a step ahead.
Option 2: Spread it monthly
Take your expected annual tax + NI bill, multiply by 1.5 (to cover POA), and divide by 12. Transfer that amount to your tax savings account each month.
Option 3: Use a calculator
Our free tax calculator shows your estimated bill and helps you understand what's coming.
Can You Reduce Payments on Account?
Yes. If you expect your income to drop next year, you can apply to reduce your POA through your HMRC online account.
Be careful: If you reduce too much and your actual bill is higher, you'll owe the difference plus possible interest.
Only reduce POA if you're confident your income will genuinely be lower.
What If Your Income Drops?
If your actual tax bill is less than your Payments on Account, HMRC will either:
- Apply the overpayment to your next bill, or
- Refund you
You won't lose the money—but it can be frustrating if you're short on cash and overpaid.
Common Mistakes
1. Only budgeting for the "headline" bill
Your headline bill (e.g., £6,000) isn't what you'll pay in January if POA applies. Plan for the full hit.
2. Forgetting the July payment
People focus on January and then get surprised in July. Mark both dates in your calendar.
3. Not knowing POA exists until January
This catches many first-time filers. Learn about POA before your first bill arrives.
4. Reducing POA too aggressively
If your income doesn't drop as expected, you'll owe more later—plus interest.
FAQ
Why am I paying tax twice?
You're not—you're paying this year's bill and an advance on next year. It evens out over time.
When are Payments on Account due?
31 January and 31 July each year.
What's a balancing payment?
The difference between what you owe and what you've already paid through POA. Due 31 January.
Can I reduce my Payments on Account?
Yes, via your HMRC online account. But be cautious—underestimating can lead to penalties.
What if my income goes up?
Your balancing payment will be higher, and your next year's POA will increase.
What happens if I miss a payment?
You'll be charged interest and possibly a penalty. Contact HMRC quickly—they may offer a Time to Pay arrangement.
Do POA include National Insurance?
Yes. The amounts are based on your total Self Assessment bill, which includes NI.
Is there a way to avoid POA entirely?
Only if your bill is under £1,000 or most of your tax is collected via PAYE.
How much will my POA be next year?
50% of this year's total SA bill, paid twice.
Can I pay early?
Yes. HMRC accepts early payments, which can help with budgeting.
Next Steps
Use our calculator to estimate your tax and plan for Payments on Account.
Learn how to set aside the right amount for tax or check the full deadlines checklist.
Back to the Learn hub.
This guide is for general information only. Tax rules change, and everyone's situation is different. Always check the latest HMRC guidance and consider speaking to a qualified accountant if you're unsure.