Payments on Account for Dividends (UK): how they work, when you’re hit, and how to plan cashflow – Heights Accountancy – How Much Does an Accountant Cost in the UK? Fees for Ltd Companies, Sole Traders, Partnerships & Property

“Why has HMRC asked me to pay next year’s tax now?”
If your dividend tax bill crosses certain thresholds, HMRC will ask for payments on account (POA), two advance instalments due 31 January and 31 July. They’re a sensible system, but the first year can feel like a shock if you weren’t expecting a January + July double-hit. GOV.UK

Want the fast path? Book a 20-minute planning call, we’ll run your numbers on screen and map the POA cash dates alongside VAT and payroll.

Key facts — in plain words

Two instalments: You usually pay 50% + 50% of last year’s Self Assessment tax (Income Tax, and Class 4 NI for sole traders) on 31 Jan and 31 Jul. GOV.UK
Who pays: You usually must make POA unless last year’s bill was under £1,000 or at least 80% of your tax was collected at source (e.g., via PAYE). GOV.UK
What’s not in POA: Capital Gains Tax and Student Loan, these are settled with your 31 January balancing payment. GOV.UK

New to this? See how your dividend tax is actually calculated in our companion explainer: Dividend Tax 2025/26 (UK)

What are payments on account (POA)?

POA are advance payments toward your next Self Assessment bill. HMRC takes your last year’s bill as a benchmark and splits it into two equal instalments due 31 January and 31 July. When you file the next return, you compare what you actually owe with what you paid on account, any difference is settled by a balancing payment on 31 January (and that date may also carry CGT/Student Loan amounts because those are not part of POA). GOV.UK

If you didn’t make POA last year (e.g., it’s your first Self Assessment year), you’ll often owe last year’s full bill + your first POA in the same 31 January, that’s the first-year spike you hear about. GOV.UK

Do dividends trigger payments on account?

Yes. Dividends form part of your Income Tax calculation, so a larger dividend year can push you over the £1,000 and 80% tests and trigger POA. The POA instalments themselves are based on last year’s tax, not just the dividend slice, but dividends are frequently the cause of crossing the threshold. GOV.UK

Not sure how your dividends are banded? Check rates, the £500 allowance, and worked examples here: Dividend Tax 2025/26

How the maths works (with quick table)

Scenario	What you pay on 31 January	What you pay on 31 July	What’s going on
Steady-state (you paid POA last year)	Balancing payment (if any) for last year + first POA (50%) for the new year	Second POA (50%)	Two instalments toward the new year, plus any top-up for last year. GOV.UK
First-timer (no POA last year)	Full bill for last year + first POA (50%) for the new year	Second POA (50%)	The classic January spike for new SA filers. GOV.UK
Big drop in income expected	You can reduce POA (online or SA303) — but interest is charged if you reduce too far	Smaller (or nil)	Reduce cautiously; top up later if income rebounds. GOV.UK+1

Want this plotted on a calendar with PAYE/VAT and supplier DDs? Use our Cashflow Forecasting (52-week) approach to avoid collisions.

First-year shock: a simple example

You took dividends in 2025/26 for the first time and the SA bill is £3,600 (Income Tax on dividends).

Because last year’s SA bill was over £1,000 and not mostly collected via PAYE, HMRC asks for POA.
31 Jan 2026: pay £3,600 (for 2025/26) + £1,800 (first POA toward 2026/27).
31 Jul 2026: pay £1,800 (second POA).
When you file 2026/27, HMRC compares your actual bill with the £3,600 POA you already paid, any top-up or refund appears in the 31 Jan 2028 balancing calculation. GOV.UK

If your 2026/27 income will be lower, you can apply to reduce those £1,800 instalments (see below). Reduce too far, and HMRC charges late-payment interest on the shortfall. GOV.UK

How to reduce, increase, or smooth payments on account

Reduce (SA303 or online): If your current year will be lower, ask HMRC to reduce POA, online in your account or using SA303. Reduce sensibly; if you undershoot, interest runs on the underpaid amount until you make it up. GOV.UK
Increase voluntarily: If this year will be higher, you can increase POA to avoid a big balancing payment (and the associated interest). GOV.UK
Pay weekly/monthly (Budget Payment Plan): Set up a Direct Debit to drip-feed money toward your next SA bill. It’s optional but excellent for cash discipline. GOV.UK
Code out small balances: If your total SA bill is under £3,000, you pay via PAYE, and you file online by 30 December, HMRC can collect via your tax code. (Useful for smaller dividend bills.) GOV.UK
Time to Pay: If you cannot pay in full, arrange a payment plan with HMRC to avoid escalation. GOV.UK

Practical next step: if dividends are part of a director pay mix, see Director Pay Guide (2025/26) and NIC, PAYE & Pension Costs (2025/26) for the salary/bonus side of the equation.

Dates, interest & penalties (don’t ignore the brown envelopes)

Key dates: 31 January (balancing payment + first POA), 31 July (second POA). GOV.UK
HMRC interest: charged on late or under-reduced amounts; the rate changes, check the current late-payment rate (e.g., 8.00% from 27 Aug 2025). GOV.UK
Penalties (late payment): 5% of the unpaid tax at 30 days, 6 months, and 12 months, on top of interest. Act early if you’re struggling. GOV.UK

Director-level planning tips (keep more, sleep better)

Forecast the spikes: Add POA lines to your 52-week cashflow so Jan/Jul don’t clash with VAT quarters, payroll, or supplier DDs, here’s our Cashflow Forecasting (52-week) service.
Link to real profits & paperwork: If you rely on dividends to fund POA, make sure you have distributable profits and minutes/vouchers in order, start with Dividend Paperwork: Minutes & Vouchers and Illegal Dividends: How to Avoid/Fix.
Right-size early: Expect a drop? Reduce POA now (sensibly) and set up a Budget Payment Plan to rebuild if needed. Expect a rise? Increase POA to cap interest. GOV.UK
Self-employed too: POA also applies where your Income Tax/Class 4 NI pushes the thresholds we cover the self-employed basics in our MTD for ITSA and Self-Employed Tax guides (link once live). GOV.UK

Reporting side covered here: Reporting Dividends: Self Assessment (register by 5 October if you’re new to SA; how to code out under £3,000; when POA applies). GOV.UK

FAQs

Do dividends count for payments on account?
Yes, dividends are part of your Income Tax under Self Assessment, so they can trigger POA if your bill is >£1,000 and <80% wasn’t collected via PAYE. GOV.UK

Are Capital Gains Tax or Student Loan included in POA?
No. They’re not included in POA and are settled in the 31 January balancing payment. GOV.UK

Can I reduce payments on account?
Yes, online or using SA303 if you expect a lower bill, but you’ll pay interest if you reduce too much. GOV.UK

Can I spread the cost?
Yes, set a Budget Payment Plan (weekly/monthly) toward your next bill, or agree Time to Pay if you can’t pay in full. GOV.UK+1

My bill is under £3,000 — can HMRC take it via my tax code?
Yes, if you file online by 30 December and meet the PAYE criteria, HMRC can code it out. GOV.UK

Related Guides (you’ll see these linked above as you read)

Next Steps

Avoid the January/July cash crunch before it starts.

Book a 20-minute planning call, we’ll map your dividend plan, run the POA maths live, and leave you with a week-by-week cash timeline.

Sources (key GOV.UK references used above)

Understand your Self Assessment bill, Payments on account (what they are, when due, first-year spike, thresholds). GOV.UK
Claim to reduce payments on account (SA303) (how to reduce; risks). GOV.UK
Pay SA bill through your tax code (≤£3,000; 30 Dec online filing). GOV.UK
Budget Payment Plan, pay weekly/monthly (smoothing). GOV.UK
HMRC interest rates (late-payment interest; current rate). GOV.UK
Self Assessment penalties (5% at 30 days/6 months/12 months). GOV.UK
SALF303 manual (CGT & Student Loan excluded from POA). GOV.UK