If you complete a Self Assessment tax return, there is a good chance HMRC is expecting a payment from you by 31 July 2026. This is your second payment on account for the 2025/26 tax year, and for many self-employed people, landlords and company directors it arrives at an awkward time, six months after the January rush and often when cash is tied up elsewhere in the business.
Payments on account catch people out every summer, usually because they are not fully understood. In this guide we explain what they are, how your July payment is calculated, and what you can do if you think the amount is too high.
What Are Payments on Account?
Payments on account are advance payments towards your next Self Assessment tax bill. Rather than collecting everything in one lump sum the following January, HMRC asks you to pay in two instalments during the year, one by 31 January and one by 31 July.
Each instalment is normally 50% of your previous year’s tax bill, covering your Income Tax and, if you are self-employed, your Class 4 National Insurance. So if your 2024/25 bill was £6,000, HMRC will have asked for £3,000 in January 2026 and a further £3,000 by 31 July 2026, both counting towards your 2025/26 liability.
It is important to understand that this is not an extra tax. It is the same tax you would owe anyway, simply collected earlier and spread across the year.
Who Has to Make Payments on Account?
You are required to make payments on account if both of the following applied to your last Self Assessment bill:
1. Your bill was more than £1,000, and
2. Less than 80% of the tax you owed was collected at source, for example through PAYE.
This is why the system mainly affects the self-employed, landlords with rental profits, and company directors who take a significant part of their income as dividends. If most of your tax is already deducted through a salary, you will usually fall outside the rules.
How Your 31 July Payment Is Calculated
HMRC assumes your income this year will be roughly the same as last year. Your two payments on account are therefore each set at half of your previous year’s bill.
Once you file your 2025/26 return, the two payments you have made are deducted from your actual liability. If you owe more, the difference is due as a balancing payment by 31 January 2027. If you have overpaid, HMRC refunds you. Your Self Assessment statement or HMRC online account will show the exact amount due this July. If you want to sanity check the numbers behind your bill, our income tax calculator and salary after tax calculator are a helpful starting point.
Can You Reduce Your Payments on Account?
Yes, and this is the part many taxpayers do not realise. If you genuinely expect your 2025/26 tax bill to be lower than your 2024/25 bill, you can apply to reduce your payments on account. Common reasons include:
A fall in self-employed profits or rental income.
Moving from self-employment into a PAYE role, so more tax is collected at source.
Incorporating your business, so profits now sit within a limited company.
A one-off spike in last year’s income that will not repeat.
You can make the claim through your HMRC online account or by submitting form SA303. You will need to provide a reasonable estimate of your expected income for the year.
A word of caution. If you reduce your payments too far and your actual bill turns out to be higher, HMRC will charge interest on the shortfall from the original due dates. Late payment interest is currently charged at the Bank of England base rate plus 4 percentage points, so an over-optimistic reduction is not free. Only reduce to a figure you can support with real numbers, and if in doubt, leave a sensible margin.
What Happens If You Miss the Deadline?
Missing the 31 July deadline does not trigger a fixed penalty in the way a late tax return does, but interest starts running on the unpaid amount from 1 August, and a surcharge can follow if the debt is left unresolved.
If the issue is affordability rather than the amount being wrong, do not simply ignore the deadline. HMRC’s Time to Pay arrangements allow you to spread the cost, and you will generally get a moreflexible outcome by contacting them before the deadline rather than after.
How Taylors LLP Can Help
Payments on account sit in that frustrating middle ground: simple in principle, but easy to get wrong in practice. As experienced accountants in Finchley serving clients across North London, we regularly help self-employed individuals, landlords and company directors check whether their July figure is right, prepare properly supported reduction claims, and plan ahead so the January and July payments never come as a surprise.
If your income has changed this year, or you are simply not sure whether the amount HMRC is asking for looks right, our taxation services team can review your position well before the deadline. Filing your return early also means you know your actual liability rather than paying against an estimate.
This article is based on tax rules for the tax year beginning 6 April 2026 and is intended as general guidance only, not personal tax advice. Rates and thresholds can change, and the right approach depends on your individual circumstances. Contact us for help.
