Reacting to: Taxpayers urged to get ahead of July Self Assessment payment deadline (gov.uk / HMRC) →
HMRC put out a reminder this week that the second Payments on Account deadline for Self Assessment falls on 31 July — a bill equal to half of your previous year's total tax liability, due again just six months after the January payment. It applies to most people in Self Assessment, with a couple of exceptions: it doesn't apply if your last tax bill was under £1,000, or if you already paid more than 80% of what you owed through something other than Self Assessment, such as PAYE.
Why the July payment gets missed
The January deadline usually combines the final balancing payment for the previous tax year with the first payment on account for the current one, so it is the larger payment for most people. The July payment is often smaller, and easier to forget.
Nothing arrives in July to prompt you. There is no return to file, no calculation to approve, no accountant emailing a PDF. The amount was fixed back in January, so put the date and amount in your diary when you file.
How the two payments work
Payments on account are advance instalments towards the tax year you are currently in, based on the year you have just finished. Each one is normally half of your previous year's total liability. They fall on 31 January and 31 July.
You are outside the system entirely if either of two things is true: your last tax bill was under £1,000, or more than 80% of the tax you owed was already collected at source — through a PAYE tax code, for instance, or tax deducted by your bank on savings interest. Miss both exemptions and the instalments are automatic.
Worked example: a sole trader's first two years
An illustrative example. A sole trader finishes 2024–25 with a total liability of £9,400 — income tax plus Class 4 National Insurance. It's her first year in Self Assessment, so she made no payments on account towards it.
- 31 January 2026: £9,400 balancing payment for 2024–25, plus the first payment on account for 2025–26 of £4,700. Total leaving her account: £14,100.
- 31 July 2026: second payment on account for 2025–26 of £4,700.
She may have budgeted for £9,400, but the January demand was half as much again, because she is paying one year's bill and an advance on the next year on the same date.
Now suppose 2025–26 turns out better than 2024–25, and her liability lands at £11,200. She has already paid £9,400 on account, so on 31 January 2027 she owes a balancing payment of £1,800, plus the first payment on account for 2026–27 of £5,600 — £7,400 in one go. As profit grows, the January payment grows faster than the profit.
What happens if you miss it
Payments on account do not attract the 5% late payment penalties that hit a late balancing payment at 30 days, six months and twelve months. HMRC's own guidance frames those penalties around tax "not covered by any payment on account or balancing payments made". A late instalment costs you interest.
Interest runs from the day after the deadline at 7.75% — the rate in force since 9 January 2026, set as the Bank of England base rate of 3.75% plus four percentage points. The base rate was held at 3.75% again on 29 July 2026, so that is the number to work with.
Put it on the example above. If she missed the £4,700 due on 31 July 2026 and cleared it on 30 September 2026, that is 61 days late: £4,700 × 7.75% × 61/365 = £60.87. If you can pay a little late, pay as soon as you can. If you cannot pay at all, contact HMRC.
If you can't pay it
Talk to HMRC and set up a Time to Pay arrangement, and do it before the debt ages rather than after. Payment plans can be monthly or weekly. Interest continues to run inside an arrangement, but an agreed plan keeps you out of the escalation that follows a debt HMRC has heard nothing about.
Deal with the July instalment when it falls due. January already carries a balancing payment and the next instalment, and an unpaid July payment adds to both.
Can you reduce the payments?
Yes. If your income has genuinely fallen — you've lost a major client, gone part-time, taken a salaried job — you can apply to reduce your payments on account to reflect what you actually expect to owe. It is a straightforward claim and it stops you paying HMRC more in advance than you will owe.
Do not reduce too far. If you cut the instalments below what your final liability turns out to be, HMRC charges interest on the shortfall from the original due dates, whenever you found out. Base the claim on a realistic forecast, and take advice if you are unsure.
Preparing for next July
Three habits help:
- Diarise both dates the moment your return is filed — 31 January and 31 July, with the actual amounts written down.
- Move a fixed percentage of every payment you receive into a separate tax account. For most sole traders trading at these levels, somewhere around a quarter to a third of profit covers income tax and Class 4 National Insurance. Sweep it on the day the money lands.
- Keep the bookkeeping current. If the year's income and expenses are tracked as they happen rather than reconstructed under pressure, you know your next liability months before HMRC tells you — which is also what makes a reduction claim safe to make.
Current bookkeeping is part of our tax planning support and the day-to-day work we do for the sole traders on our books. If you're inside Making Tax Digital for Income Tax, quarterly updates keep your figures current, so you can see your next payment on account in advance. Our complete Self Assessment guide covers the filing side in full.
