I've already paid my tax bill. Why is HMRC asking for more in July?

Because the January payment and the July payment are doing two different jobs. In January you settled the year that had ended — the balancing payment — and at the same time made the first instalment towards the year you were already halfway through. July is the second instalment towards that same current year. Nothing has been double-charged and nothing has gone wrong. The money is sitting against a liability that has not been calculated yet, and it will be credited when you file. If your statement genuinely shows more than half your previous year's liability due in July, that usually means an amendment or an unpaid balance from an earlier year is also in the figure.

Will I get a penalty for paying a payment on account late?

No — you get interest, not a penalty. The 5% late payment penalties that apply at 30 days, six months and twelve months are charged on tax not covered by payments on account or balancing payments, which means they bite on a late balancing payment rather than on a late instalment. Interest still runs daily at 7.75% from the day after the due date, so a late instalment is not free, just considerably less punishing than most people fear. Do not read that as permission to ignore it: an unpaid July instalment lands on top of an already heavy January, and that is where genuine trouble starts.

My income has dropped. Can I just pay less?

You can, but do it properly by applying to reduce your payments on account rather than simply underpaying. An application tells HMRC what you expect the year's liability to be and resets both instalments to match, which stops you funding a tax bill you are not going to owe. The risk is reducing too far: if your final liability comes in above what you claimed, HMRC charges interest on the shortfall from the original 31 January and 31 July due dates, not from the date the return was filed. So base the claim on a real forecast of the year. An optimistic guess costs you interest retrospectively.

How much should I be putting aside each month?

Set the percentage against profit, not turnover, and sweep it the day money arrives rather than at month end. For a sole trader whose profits sit inside the basic rate band, income tax at 20% plus Class 4 National Insurance at 6% is 26% of profit above the £12,570 personal allowance. Cross £50,270 and the marginal rate jumps to 40% plus 2%, so the sensible reserve rises sharply. Many sole traders find a quarter to a third of profit covers it comfortably. The exact figure matters less than the habit: money in a separate account on the day it lands never gets spent twice.

Do payments on account cover my VAT and Corporation Tax too?

No. Payments on account under Self Assessment cover income tax and Class 4 National Insurance on your personal liability, and nothing else. VAT runs on its own quarterly cycle with its own deadlines and its own penalty regime. Corporation Tax does not arise for a sole trader at all — and if you run a limited company, Corporation Tax is due nine months and one day after your accounting period ends, quite separately from anything on your personal return. Treating all business tax as one pot is one of the more expensive mistakes we see, because the deadlines never line up.

The 31 July Self Assessment deadline

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 this one catches people out

The January deadline gets all the attention, for obvious reasons — it usually comes with the final balancing payment for the previous tax year on top of the first payment on account for the current one, so it's the bigger, more painful date in most people's calendar. July's payment is exactly half that size in most cases, which paradoxically makes it easier to forget about, or to assume it's smaller than it actually is.

There's a second reason it stings. 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, and the only thing standing between you and an interest charge is whether you wrote it in the diary six months ago.

How the two payments actually 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. Nobody asks you whether you'd like to make them.

Putting real numbers on it

An illustrative example, not a client. 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.

That first January is the one that ruins people. The bill she mentally budgeted for was £9,400; the amount actually demanded was half as much again. Nothing has gone wrong — she is simply paying one year off and a year ahead 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. Grow the business, and the January number grows faster than the profit does. That is the mechanic nobody explains up front.

What actually happens if you miss it

Here is the part worth knowing, because it is genuinely better news than most people assume. 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, not a penalty.

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. Annoying, avoidable, and not a catastrophe. If you have the money a fortnight later, pay it a fortnight later and stop losing sleep. If you don't, read on — because that is the situation where doing nothing does real damage.

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.

The thing not to do is pretend the July instalment doesn't exist and hope January absorbs it. It won't. January already carries a balancing payment and the next instalment; adding an unpaid July payment to that pile is how a manageable bill turns into an unmanageable one.

Can you reduce the payments?

Yes, and it is the most under-used lever in Self Assessment. 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 lending HMRC money you need.

The trap is reducing 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, not from the date you found out. So the claim needs to be a real forecast rather than an optimistic one. This is a judgement call worth taking advice on rather than guessing at: reduce to a figure you can defend, not to the figure you'd prefer.

Make next July a non-event

Three habits remove this problem permanently.

Diarise both dates the moment your return is filed — 31 January and 31 July, with the actual amounts, not just "tax due".
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, not at month end.
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.

That last one is the real fix, and it is the gap our tax planning support exists to close, along with the day-to-day work we do for the sole traders on our books. It is also no longer optional for everyone: if you're inside Making Tax Digital for Income Tax, quarterly updates mean your figures are current by design, and your next payment on account stops being a surprise. Our complete Self Assessment guide covers the filing side in full.

The 31 July Self Assessment deadline is closer than it feels