Payments on Account Explained for Landlords

Payments on account are HMRC forcing you to pre-pay next year's tax based on this year's bill, so you do not get a year behind.

"This guide provides general information about UK landlord tax obligations. It is not financial or legal advice. Tax treatment depends on your individual circumstances and may change. Consider consulting a qualified accountant or solicitor for advice specific to your situation."

1. What payments on account are and when they kick in

Legal basis: TMA 1970 s59A.

If your Income Tax + Class 4 NI under Self Assessment is over GBP 1,000 and less than 80% has been collected at source (PAYE, CIS etc.), you must make payments on account (POAs) for the next year.

• Each POA is 50% of last year's total Income Tax + Class 4 NI liability (ignoring Capital Gains Tax and student loans).

Dates:

• First POA: 31 January in the tax year (eg 31 Jan 2026 for 2025-26).
• Second POA: 31 July after the tax year (eg 31 Jul 2026 for 2025-26).
• Balancing payment: 31 January after the tax year (eg 31 Jan 2027 for 2025-26) for any shortfall plus first POA for the following year.

That is why year 2 feels like a triple whammy: you pay Year 1's tax plus two chunks towards Year 2 in one 6-month window.

2. Worked example: GBP 15k profit in Year 1, GBP 20k in Year 2

Assumptions:

• You are a higher-rate taxpayer.
• Year 1 (2025-26) net rental profit: GBP 15,000.
• Tax on that rental slice at 40% (ignore Section 24 nuance here to focus on POAs): GBP 6,000 Income Tax, zero Class 4 NI (property has no Class 4).

For 2025-26 (Year 1)

Due by 31 Jan 2027:

• Balancing payment for 2025-26: GBP 6,000.
• Payments on account for 2026-27:
• Each POA = 50% x 6,000 = GBP 3,000.

So:

• 31 Jan 2027: GBP 6,000 + GBP 3,000 = GBP 9,000.
• 31 Jul 2027: second POA GBP 3,000.
• Total cash leaving between Jan and July 2027: GBP 12,000 on a GBP 15k profit year. That is the "triple bill" feeling.

For 2026-27 (Year 2) -- profit up to GBP 20,000

• Assume tax on Year 2 rental slice = GBP 8,000.
• You have already paid GBP 6,000 on account (3k Jan + 3k Jul 2027).
• Balancing payment (31 Jan 2028): GBP 8,000 - GBP 6,000 = GBP 2,000.
• New POAs for 2027-28:
• Each = 50% x 8,000 = GBP 4,000.

So 31 Jan 2028 you pay:

• GBP 2,000 (balancing 2026-27)
• GBP 4,000 (first POA 2027-28)
• Total GBP 6,000 in Jan 2028, then GBP 4,000 again in July 2028.

Pattern

• Year 1: only the tax itself (no POAs).
• Year 2 January: Year 1 tax + first POA = painful.
• After that it stabilises, with Jan = balancing + new POA and July = second POA.

3. Reducing payments on account (and when not to)

If you expect your next year's tax bill to be lower, you can ask to reduce POAs.

How:

• When filing your return, tick the "reduce payments on account" box and enter a lower figure.
• Or later, submit form SA303 or use your HMRC online account to reduce POAs before they fall due.

Rules:

• You must have a reasonable basis: lower profits, more reliefs, more tax deducted at source.
• If you reduce POAs too far and your final bill is higher, HMRC will:
• Charge interest on the underpaid tax from the original due dates.
• Potentially penalty if the reduction was careless or deliberate.

MTD interaction:

• Making Tax Digital quarterly updates do not change POA rules or dates.
• POAs remain driven by the final Self Assessment calculation under s59A, not by quarterly submissions.

4. Interest on late POAs and how much to set aside

Interest

• HMRC's late payment interest is currently about 7.75% a year from Jan 2026 after base rate cuts, and has been between 7.5-7.75% recently.
• Interest runs daily from the day after each due date until you pay.
• That is effectively an 8% loan from HMRC, which is expensive for what is basically an avoidable overdraft.

How much of your rent to ring-fence

For a higher-rate landlord with some mortgage interest and normal expenses, a safe rule of thumb is to park:

• 25-30% of gross rent if you are in basic rate overall.
• 30-35% of gross rent if you are in higher rate and Section 24 bites hard.

So on GBP 1,200/month rent, setting aside GBP 350-400/month into a separate "tax pot" will usually cover the eventual SA bill plus payments on account. Anything left over after the 31 Jan balancing bill is a bonus rather than a crisis.

5. What forums get wrong about payments on account

The usual bad takes:

"I can ignore POAs; they are optional." They are not. If s59A applies, POAs are legally due on the dates above. Ignoring them means instant arrears plus interest and potentially penalties.

"If my income drops, HMRC will just see that in next year's return and adjust." Not automatically. You must claim to reduce POAs via the return or SA303. Otherwise you overpay and only get the excess back after filing.

"POAs are based only on self-employment, not rental." They are based on your total Income Tax + Class 4 NI under SA, so rental tax absolutely counts when HMRC calculates whether POAs are needed.

"MTD means we will pay quarterly instead of POAs." As at 2026, MTD for ITSA adds quarterly reporting, but does not remove s59A payments on account. The 31 Jan / 31 Jul pattern still stands.

If you build POAs into your cashflow from day one, they stop being a shock. Treat them like a compulsory standing order into HMRC's pocket: model them, fund them monthly, and the "triple bill" in year 2 becomes just another scheduled payment rather than a panic.

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