What Are Payments on Account?
Payments on Account (POA) are advance payments toward your next year's Self Assessment tax bill. HMRC requires them because the self-employed pay their tax significantly later than PAYE employees (who pay as they earn). To reduce the gap, HMRC collects two advance payments, each equal to 50% of the prior year's tax liability.
The payments on account include: Income Tax and Class 4 National Insurance. They do not include Capital Gains Tax or student loan repayments, which are always collected via the balancing payment.
When Do Payments on Account Apply?
Payments on Account are required when your Self Assessment tax bill (income tax + Class 4 NI) is £1,000 or more, AND less than 80% of your tax was collected at source (e.g. from PAYE income).
In practice: if you are fully self-employed with profits generating a tax bill of £1,000+, you will almost certainly be required to make payments on account.
Payment Dates (Self Assessment Calendar)
Jan
31 January (annually)
Balancing payment for previous tax year (any underpayment) + 1st Payment on Account for current tax year (50% of prior year bill)
Jul
31 July (annually)
2nd Payment on Account for current tax year (remaining 50% of prior year bill)
Year-by-Year Worked Example
Sarah becomes self-employed in May 2025. Her first full tax year profit is £40,000. Let's trace her payments through.
Her 2025/26 tax liability:
- Income tax: approximately £5,486
- Class 4 NI (6% on £27,430): approximately £1,646
- Total bill: £7,132
Sarah's Payment Schedule
The first-year shock
Sarah has been freelancing for 20 months, but owes £10,698 in a single month. If she spent her earnings without setting aside enough, this can be devastating. The solution is to save consistently from day one.
How Much Should You Save Each Month?
A common rule of thumb: set aside 25–30% of your monthly profit into a separate savings account. Here's a more precise breakdown for common profit levels in 2026/27:
| Annual Profit | Income Tax | Class 4 NI | Total Bill | Monthly Save |
|---|---|---|---|---|
| £20,000 | £1,486 | £448 | £1,934 | £161 |
| £30,000 | £3,486 | £1,048 | £4,534 | £378 |
| £40,000 | £5,486 | £1,648 | £7,134 | £595 |
| £50,000 | £7,486 | £2,248 | £9,734 | £811 |
| £60,000 | £11,432 | £2,396 | £13,828 | £1,152 |
| £80,000 | £19,432 | £2,596 | £22,028 | £1,836 |
Add student loan repayments on top if applicable. Use our self-employed calculator for your specific numbers.
How to Reduce Payments on Account
If your profit will be lower in the current year than the previous year, you can apply to reduce your Payments on Account via your Self Assessment online account. HMRC will recalculate the advance payments based on your estimated lower income. Be careful: if you reduce too aggressively and your profit turns out higher, HMRC will charge interest on the underpayment.
Pension contributions also reduce your taxable profit (and therefore your POA base). A £5,000 personal pension contribution on a £40,000 profit saves roughly 20% income tax = £1,000 in tax, which also reduces each POA by £500.
Making Tax Digital: What Changes from April 2026
From April 2026, self-employed individuals with annual income above £50,000 must use Making Tax Digital (MTD) compatible software and submit quarterly updates to HMRC. This replaces the annual Self Assessment return for qualifying income. The 31 January final declaration deadline remains. MTD expands to those earning above £30,000 from April 2027.
MTD does not change your payment dates
The 31 January and 31 July Payments on Account deadlines are unchanged under MTD. However, quarterly reporting gives you (and HMRC) more accurate in-year data, potentially making it easier to apply to reduce POA if your profits drop mid-year.
Sources
HMRC Self Assessment guidance · GOV.UK Payments on Account · HMRC MTD for Income Tax 2026. For guidance only — not financial advice.