Second Payments on Account: Preparing for Your 31 July Tax Bill

For anyone in Self-Assessment who makes payments on account, 31 July is the second of two dates each year when a tax payment falls due, alongside the more widely known 31 January deadline. It's easy to forget about, precisely because there's no return to file alongside it and no obvious prompt in the middle of summer - but the bill is just as real, and interest starts accruing on late payments in exactly the same way it does in January.

How Payments on Account Actually Work

If your Self-Assessment tax bill for a year exceeds £1,000, and less than 80% of your tax is already collected at source (through PAYE, for example), HMRC generally requires you to make payments on account towards the following year's tax bill. Each payment on account is calculated as 50% of your previous year's tax liability, and they're due in two instalments - the first alongside your balancing payment on 31 January, and the second, standalone, on 31 July.

The logic behind the system is straightforward: rather than paying a full year's tax in one go the following January, you spread an estimated amount across two payments during the year itself, based on the assumption that your income this year will be broadly similar to last year. Any difference between what you've actually paid on account and what you actually owe is then settled - either as an additional balancing payment or a refund - when you file your return for the year in question.

Why the July Bill Can Come as a Surprise

Because there's no filing obligation attached to the July payment, it's easy for it to arrive as an unwelcome surprise, particularly for anyone newly in Self-Assessment who paid their first payment on account back in January without fully registering that a second instalment would follow six months later. If you're budgeting for tax as a single annual event around January, the July payment can catch you off guard and create a cash flow problem if you haven't set money aside for it specifically.

What to Do If Your Income Has Dropped

If your income for 2025/26 is genuinely lower than it was for 2024/25 - perhaps you've had a quieter year, changed how you work, or taken on less self-employed work alongside a new job - you don't have to pay a payment on account based on last year's higher figure. HMRC allows you to apply to reduce your payments on account if you reasonably expect this year's tax bill to be lower, using form SA303 or the equivalent function within your online account.

This needs to be approached carefully, though. If you reduce your payments on account and it later turns out your income was higher than expected, HMRC will charge interest on the shortfall between what you paid and what you should have paid, calculated as if the original, unreduced payment on account had fallen due on time. Reducing your payment on account should be based on a genuine, reasonably confident estimate of lower income, not simply a way of deferring a payment you're not sure about.

What to Do If Your Income Has Risen

The reverse situation is arguably the more common trap: if your income for the current year is actually higher than last year, your payments on account will still only be based on last year's lower figure, which means your eventual balancing payment the following January could be substantially larger than expected. It's worth doing a rough estimate of your likely tax position partway through the year, rather than waiting until you file your return to discover the gap, so you can start setting aside the difference in good time rather than facing an unexpected shortfall in January.

Setting Money Aside as You Go

The single most effective habit for managing payments on account, in either direction, is treating tax as a regular set-aside rather than a periodic shock. Many self-employed people find it useful to transfer a fixed percentage of income into a separate account as it's earned throughout the year, so that whichever direction January and July payments move in, the cash is already there rather than needing to be found at short notice.

What Happens If You Miss the Deadline

As with the January deadline, interest accrues daily on any payment on account paid late, from 1 August onwards, and continues to build until the balance is settled. Unlike a missed filing deadline, there's no separate flat penalty for a late payment on account in isolation, but the interest charged can still add up meaningfully if a payment is left outstanding for an extended period, so it's not a deadline worth treating casually simply because there's no return attached to it.

A Mid-Year Check-In Worth Having

Because the July payment lands at a quiet point in the tax calendar, away from the noise of January, it's actually a good natural moment to have a broader check-in on your tax position for the year - reviewing income so far, checking your payments on account are still sensible, and flagging anything that might affect your return before it's filed. If you'd like that kind of mid-year review, get in touch and we can take a proper look at where things stand.