Payments on Account 2026/27 — How They Work, Due Dates & Reductions

Payments on Account are HMRC's advance billing system for Self Assessment: if your tax bill for a year is more than £1,000 — and less than 80% of your tax was already collected at source — you pay 50% of the previous year's bill on 31 January and another 50% on 31 July, with any balancing payment due the following 31 January. For the 2026/27 tax year the dates are 31 January 2027 and 31 July 2027, with the balancing payment on 31 January 2028. Work out your instalment schedule with the Self Assessment Calculator→.

This guide explains when POA are triggered, what is and is not included in the calculation, how to reduce your instalments when income falls, the first-year exemption, and the penalties and interest that follow missed deadlines.

When Payments on Account Apply

The £1,000 test is based on the relevant previous-year income-tax and Class 4 National Insurance liability used for POA. Capital Gains Tax and student-loan repayments are not themselves payments on account, and Class 2 National Insurance, penalties and interest are not included in the POA instalment calculation. The 80% rule matters for employees with a side income: if at least 80% of the relevant income tax was collected outside Self Assessment, POA are not required even when the relevant amount exceeds £1,000. In practice POA often affect self-employed people, landlords and investors whose income carries no PAYE withholding.

The Payment Schedule

Each POA is normally 50% of the relevant previous-year amount, principally income tax and Class 4 National Insurance. If that relevant amount was £8,338, each 2026/27 instalment would be £4,169. When you file your 2026/27 return, the actual liability is compared with the £8,338 already paid: any shortfall is added to the balancing payment on 31 January 2028, and any excess can be repaid or credited after the return is processed. The system assumes your income is broadly stable, which is why it can create a cash-flow problem when income falls sharply.

Worked Example — The Full Cycle

Year 1. Priya, a freelancer, files her 2025/26 return with a £8,338 bill (income tax £5,486 plus Class 4 NI £2,852). The bill exceeds £1,000 and most of it was not collected at source, so POA are triggered. She pays £4,169 on 31 January 2027 and £4,169 on 31 July 2027.

Year 2. Her 2026/27 profits fall to £35,000, giving an actual bill of £7,100. She has already paid £8,338 through POA, so she is due a £1,238 refund — money she could have kept by reducing her instalments.

Reducing Your Payments on Account

If you know your income will be lower than last year, apply to reduce the instalments — online through your HMRC account, on the tax return itself, or using form SA303. You must give HMRC a reason and a reasonable estimate of the current year's liability. If you reduce too far and the actual liability is higher, HMRC can charge interest on the underpaid amount from the original due dates. A reduction should therefore reflect a genuine expected fall in liability, not simply a temporary cash shortage.

What to check before reducing them

The safest forecast starts with the previous year's tax calculation rather than the amount that happens to be in the bank. List each income source for the current year, then separate recurring changes from one-off events. A lost contract, a short letting season or a lower dividend may reduce the liability; a pension contribution, allowable expense, trading loss or change in PAYE coding may alter the calculation differently. A temporary cash squeeze does not by itself mean that the tax liability has fallen.

Check the tax year as well as the amount. A payment due in January can combine the balancing payment for the year just filed with the first advance instalment for the next year. Reducing the instalments affects the advance amount, not an already-computed balancing liability. If the account displays several charges, match each figure to the tax calculation and payment reference before making a reduction or assuming that a credit is available.

The reduction request should leave an audit trail. Save the estimate, the date of the request, the figure entered and HMRC's acknowledgement. If the forecast changes, update the plan rather than keeping an optimistic reduction. When the return is eventually filed, compare the actual liability with the instalments already paid and explain any difference in the records. This is particularly important where income is mixed: PAYE wages, self-employment, property, dividends and foreign income can move through different parts of the return, while the payment-on-account calculation follows the relevant Self Assessment amount.

Payments on account are not a separate tax bill

A payment on account is an advance against a later Self Assessment liability. It is not an extra 50% tax charge and it does not mean that the same income is taxed twice. The two instalments are credited against the liability for the relevant year when that return is processed. The confusion often arises because the first January date can contain two different items: the balancing payment for the previous year and the first payment on account for the current year.

That timing creates a practical cash-flow test. Before spending a refund or treating a year-end surplus as available, reserve enough for the next balancing payment and the next instalment. If the current year's income is materially different, make a documented forecast and consider whether a reduction is justified. If the difference is uncertain, retain a buffer rather than reducing to the lowest possible amount. Interest on an underpayment can make an aggressive reduction more expensive than keeping the money reserved.

A simple review checklist

Use the following checklist before changing a POA figure:

• Read the latest HMRC tax calculation and identify the relevant income-tax and Class 4 National Insurance amount.
• Check whether PAYE or another source collected enough tax to engage the 80% exception.
• Remove items that are not ordinary POA inputs, such as Capital Gains Tax, student-loan repayments, penalties and interest.
• Forecast the full current-year liability, not just the income source that has changed.
• Compare the forecast with instalments already due and keep the request confirmation.
• Leave cash for the balancing payment if the forecast could be wrong.

This checklist does not replace the tax calculation. It prevents the most common mistake: reducing a payment because turnover fell, without checking profit, reliefs, tax already deducted and the separate balancing amount.

Missing Deadlines

Late payment penalties stack on top of interest. HMRC may agree a Time to Pay arrangement if you contact them, but the effect on penalties depends on when the arrangement is agreed and whether its terms are met; it is not an automatic promise that every later penalty disappears. The first year of self-employment is a common source of confusion: if there is no preceding Self Assessment liability to use, POA are generally not set up for that year; the first POA cycle usually follows the first filed liability.

What Counts Toward the £1,000 Trigger

The trigger is built from the relevant income-tax and Class 4 National Insurance amount. One useful detail: if that relevant amount is £1,001, the instalments are based on the full amount, not just the excess over £1,000, so a small amount just over the threshold can produce disproportionately large instalments.

Budgeting Around the Instalments

The most reliable strategy is to treat tax as a monthly cost. A freelancer whose 2025/26 bill was £8,338 should set aside £695 a month across the 2026/27 year — £4,169 for the January instalment, £4,169 for July, and a buffer for the balancing payment the following January. Separate savings accounts labelled "tax" remove the temptation to spend the money, and most accounting software now offers a tax pot feature that rings-fences the estimated liability automatically. For landlords, the Property Income Allowance or the £1,000 trading allowance can keep a small letting business under the trigger entirely, avoiding POA altogether. Finally, remember that pension contributions made before 5 April reduce the current year's bill and the following year's instalments — a double effect that makes year-end pension funding a genuine cashflow planning tool, not just a retirement one.

Managing Your Schedule

Frequently Asked Questions

Recheck the forecast when a new income source, relief or PAYE adjustment appears.

Keep payment references separate from the underlying tax calculation.

Forecasting payments on account

Start with the previous year's actual liability, then identify income and reliefs that will change and any amounts excluded from the payment-on-account calculation. Forecast the first payment, second payment and balancing payment separately. A monthly estimate is not a substitute for the statutory dates.

If income falls, compare the revised liability with payments already due before requesting a reduction. Keep the assumptions because reducing too far can create interest. Reconcile PAYE, property, dividend, foreign and self-employed income together. Match every payment to the correct year and reference, and retain the HMRC acknowledgement.

Forecasting payments on account safely

Start with the previous year's actual liability, then identify which items are excluded from the payment-on-account calculation and which income changes are temporary. Prepare a cash forecast for the first payment, second payment and any balancing payment. Do not use a monthly tax estimate as a substitute for the statutory due dates.

If income falls, compare the revised liability with the payments already due before requesting a reduction. Keep the calculation and the assumptions: reducing too far can create interest and a late-payment problem. If income rises again, reverse the reduction promptly. A payment on account is not a second tax charge for the same year; it is an advance toward the next liability.

Reconcile every payment to the right tax year and reference. Keep HMRC acknowledgements, bank evidence and any reduction request. Where a taxpayer has PAYE, dividends, property or foreign income, use the full calculation rather than changing the payments based on one source alone.

Plan your full Self Assessment calendar with the Self Assessment Calculator→, then read the Self Assessment Filing Guide for the return itself and the Self Assessment Deadlines guide for every 2026/27 date.

Official sources

• GOV.UK — Payments on account
• GOV.UK — Claim to reduce payments on account
• GOV.UK — Self Assessment penalties
• GOV.UK — Pay a Self Assessment penalty