If you are self-employed or receive rental income from property, you may have come across the term 'Payments on Account' (PoA). It often causes confusion, particularly for people completing their Self-Assessment tax return for the first time.

Understanding how Payments on Account work can help you plan and avoid unexpected cash flow pressures.

What are Payments on Account?

Payments on Account are advance payments towards your next Income Tax bill. Rather than waiting until after the end of the tax year to collect all the tax due, HMRC asks many Self-Assessment taxpayers to make two instalments during the year.

They help spread the cost of your tax by making payments in 2 instalments. Each payment is half of the tax you owed last year.

These payments are due by midnight on 31 January and 31 July.

It’s important to remember that these are not additional taxes. They are advance payments that are offset against your future tax bill.

Who needs to pay them?

Payments on Account generally apply if you:

• Are self-employed or a business partner.
• Receive rental income from one or more properties.
• Complete a Self-Assessment tax return.
• Have a Self-Assessment tax bill of more than £1,000.
• Have less than 80% of your tax already collected through PAYE or the Construction Industry Scheme (CIS).

For landlords, rental profits are treated in much the same way as self-employment income for Self-Assessment purposes. If your rental income results in a tax bill that meets HMRC's criteria, you may also be required to make Payments on Account.

How are they calculated?

HMRC uses your most recent Self-Assessment tax bill as the basis for calculating your Payments on Account.

Each payment is normally equal to 50% of your previous year's Income Tax and Class 4 National Insurance liability. Two payments are then made during the following tax year, meaning you have effectively paid 100% of the previous year's liability in advance.

What happens if your income changes?

Once your next Self-Assessment return has been submitted, HMRC compares your actual tax liability with the Payments on Account you have already made.

If you owe more tax, you pay the remaining balance.

If your tax bill is lower, any overpayment can either be refunded or credited against future tax liabilities.

Plan with professional advice

For both self-employed businesses and landlords, Payments on Account are primarily a cash flow planning issue rather than an increase in the amount of tax you pay.

Setting money aside throughout the year can help avoid unexpected bills. In contrast, regular reviews of your business or rental income can help you understand what your future tax liabilities are likely to be.

We help self-employed businesses, landlords and property investors understand their tax obligations, budget effectively and avoid surprises. If you would like advice on your upcoming Payments on Account or help managing your Self-Assessment tax return, our team would be happy to help.

If you would like advice about your Payment on Account (PoA) or your self-assessment submission, please do give us a call on 01623 490 120 or email This email address is being protected from spambots. You need JavaScript enabled to view it.