Managing HMRC Payments on Account as a company director

If you’re self-employed, have a form of untaxed income, or are a director/shareholder of a limited company with income that needs to be reported, you’ll need to know how and when to complete your annual Self Assessment.

You must also be aware of Payments on Account, how to use them to manage your tax bills, and how you can adjust your payment term if you need to spread out your tax payments due to financial pressure or fluctuating income.

In this article, Michael McCullion, Managing Director of BI Accountancy, explains how these payments work and answers some frequently asked questions posed by company directors.

What is Self Assessment?

The Self Assessment process is used to report various forms of untaxed income to HMRC and to pay tax on that income. They’re also known as personal tax returns.

You’ll need to submit a tax return if any of the following apply to you:

• You are self-employed or a sole trader (and earned more than £1,000 before expenses, due to the trading allowance)
• You’re the director of a limited company and have dividends and/or other income apart from your salary (see here for more details).
• You receive income from a rental property in the UK
• You receive income from other savings and investments that needs to be reported
• You receive other untaxed income specified by HMRC

Being a company director does not automatically mean you have to submit a Self Assessment return, although many directors need to because they receive dividends or other untaxed income.

The Self Assessment applies to the tax year running from 6 April 2025 to 5 April 2026. The deadlines are as follows:

• Paper returns: 31 October 2026
• Online returns: 31 January 2027

You can submit the return yourself online or by post, or appoint an accountant to assist you with preparation and submission.

Find out more in our Self Assessment guide.

What is a Payment on Account?

A Payment on Account (POA) is an advance instalment towards your next year’s tax bill. You must make these payments unless:

• Your last Self Assessment bill was less than £1,000, or
• You paid more than 80% of your tax at source through PAYE or other deductions.

Each instalment normally equals 50% of your previous year’s relevant Self Assessment liability.

The first payment on account is due on 31 January, alongside any balancing payment for the previous tax year. The second is due on the following 31 July.

These payments can be confusing, so it’s important to check the figures in your HMRC account and ensure you remain up to date on what you owe.

Example: How Payments on Account work

If your tax bill for the 2024/25 tax year was £2,000, your payments on account toward your 2025/26 liability would be £1,000 each, due on:

• 31 January 2026
• 31 July 2026

Let’s say your final tax bill for 2025/26 is £2,500.

Since you’ve already paid £2,000 via payments on account, you’d owe a balancing payment of £500, due by 31 January 2027.

At that point, HMRC would also expect a new first payment on account for 2026/27 (50% of £2,500 = £1,250), due on 31 January 2027.

The second instalment of £1,250 would be due by 31 July 2027.

Note: POAs do not cover everything. Capital gains tax, student loan repayments, and the High Income Child Benefit Charge are added on top of your balancing payment.

Can you pay less than 50% as a Payment on Account?

Yes, if you expect your income – and therefore your tax bill – to be lower in the following year, you can apply to reduce your payment on account. You can do this by:

• Logging into your online HMRC account and requesting a reduction
• Submitting Form SA303 to HMRC

However, if you reduce your POA too far and underpay, interest may be charged on the shortfall. So it’s important to estimate realistically or consult with your accountant.

Common Payment on Account mistakes to avoid

Understanding how Payments on Account work can save you from surprises and penalties. Here are some common mistakes to watch out for:

• Not budgeting for the second POA in July – Many forget there’s a second payment due mid-year, which can cause unexpected cash flow issues.
• Assuming POA covers all tax liabilities – POA does not cover capital gains tax, student loan repayments, or payments due under the High Income Child Benefit Charge.
• Reducing your POA without justification – If you lower your payments and end up owing more, HMRC will charge interest on the shortfall.
• Missing a payment deadline – Late-payment penalties can apply separately where tax is not paid by the due date.
• Missing the balancing payment deadline – Even if your POAs are up to date, the balancing payment (what you still owe after final figures) is due by 31 January and must be paid in full.
• Failing to check your online HMRC account – HMRC doesn’t always notify you directly of what’s owed. Regularly logging in ensures you’re aware of your payment schedule and updates.
• Assuming accountants handle payments – Your accountant may submit your return, but making the actual POA payments is your responsibility unless agreed otherwise.

Avoiding these errors can help you stay compliant, manage your cash flow, and prevent late payment charges or interest.

If in doubt, check your HMRC account or speak with your accountant well before deadlines.

Using accounting software to stay organised

Using accounting software can significantly reduce the stress of Self Assessment and help you stay on top of tax deadlines. Cloud-based platforms like the popular Xero (30-day free trial) allow you to:

• Track income and expenses in real time
• Automatically import and reconcile bank transactions
• Generate tax estimates for the year ahead
• Store receipts, invoices, and key documentation in one place

Accounting software is especially useful if you want to keep accurate records for Payments on Account and forecast future liabilities with a high degree of confidence.