Payments on Account 2026/27: A Guide to Self Assessment Tax Payments

Payments on Account are HMRC’s method for collecting income tax and Class 4 National Insurance contributions in advance from taxpayers who are not subject to PAYE on the majority of their income. The system is designed to spread the tax liability over the year, preventing a single large bill after the Self Assessment deadline. It is not an additional tax, but a series of instalments towards the current year’s liability.

Who is Required to Make Payments on Account?

A taxpayer will be required to make Payments on Account for the 2026/27 tax year if their 2025/26 Self Assessment return meets two specific conditions:

1. Tax Liability Threshold: The total tax and Class 4 NICs bill for the previous tax year (2025/26) was £1,000 or more.
2. Tax Paid at Source: Less than 80% of the tax due for the previous year was deducted at source (for example, through an employment PAYE tax code).

If both these conditions are met, the taxpayer is automatically brought into the Payments on Account (POA) system.

Calculation and Payment Dates

PoAs are based on the previous year’s tax liability. The system assumes that the current year’s liability will be the same.

• Calculation: Each of the two payments on account is 50% of the total tax and Class 4 NICs bill from the previous tax year’s return.

The payment schedule involves three key dates:

The balancing payment is the final amount required to settle a year’s tax bill after the two Payments on Account have been deducted. If the POAs exceed the final liability, a tax refund will be due.

Reducing Payments on Account

If a taxpayer knows that their income for the current year will be lower than the previous year, they can make a claim to reduce their Payments on Account. This can be done either online via their Government Gateway account or by sending a completed form SA303 to HMRC.

Warning on Over-Reducing Payments

It is crucial to make a realistic estimate. If a taxpayer reduces their Payments on Account but their final tax bill is higher than their estimate, HMRC will charge late payment interest on the shortfall. The interest is calculated from the original due dates of the payments (31 January and 31 July) until the date the balancing payment is made. This ensures that no advantage is gained by underpaying the instalments.

Interest and Penalties for Late Payment

A distinction must be made between late payment interest and late payment penalties.

• Late Payment Interest: This is charged on all tax that is paid late, including POAs. If an instalment is not paid by the due date, interest will accrue until the date it is paid.
• Late Payment Penalties: The statutory late payment penalty regime under FA 2009, Sch 56 does not apply to the Payments on Account themselves. Instead, penalties are charged on the balancing payment if it is not paid on time. A 5% penalty is charged on any tax unpaid 30 days after the payment due date (31 January), with further 5% penalties at 6 and 12 months.

Therefore, while a late Payment on Account will attract interest, it will not, in itself, trigger a late payment penalty. The penalty risk is attached to the final balancing payment.

For detailed guidance on late payment interest calculations regarding payments on account, you may wish to refer to HMRC’s Compliance Handbook at CH142220 and the examples at CH142260. The Self Assessment Manual provides further information on the mechanics of the system, starting from SAM1020.