If you are in Self Assessment, there is a good chance a tax payment is due on 31 July 2026, even though you filed your last return back in January. This is your second payment on account, and it catches people out every summer, partly because nothing new has happened to trigger it and partly because the amount can feel arbitrary.
The good news is that the system is simpler than it looks, and if your income has dropped you may be able to reduce the payment. The catch is that reducing it carelessly can leave you with an interest charge. Here is how payments on account work, and how to handle the 31 July deadline properly.
In a nutshell
- A payment on account is an advance on next year's tax. Not an extra tax, just paid earlier.
- There are two, due 31 January and 31 July. Each is half of last year's tax bill.
- Not everyone has to make them. Under £1,000, or mostly taxed at source, and you are out.
- Class 4 is in, Class 2 and capital gains are not. Those are settled in the balancing payment.
- You can reduce a payment if income has fallen. But reduce too far and HMRC charges interest.
- Check the figure before 31 July. Decide whether to pay in full or apply to reduce.
1. What a payment on account actually is
A payment on account is an advance payment towards your next Self Assessment tax bill. HMRC assumes that your income next year will be roughly the same as last year, so it asks you to pay the expected tax in two instalments during the year, rather than in one lump at the end.
It is not an extra tax. It is the same tax you would owe anyway, just collected earlier. The first time you are caught by it can sting, because you pay your balancing bill for the year just gone and your first payment on account for the year ahead on the same January date, which can feel like a double bill. After that first year, it settles into a rhythm.
2. The two deadlines and how they are calculated
There are two payments on account each year:
- 31 January: the first instalment, alongside any balancing payment for the previous year.
- 31 July: the second instalment.
Each instalment is 50% of your previous year's tax bill. So if your 2024/25 tax came to £4,000, HMRC sets two payments on account of £2,000 each towards your 2025/26 bill. You will have paid the first £2,000 in January 2026, and the second £2,000 is what falls due on 31 July 2026.
When you file your 2025/26 return, the two payments on account are deducted from your actual bill. If you owe more, you pay the difference as a balancing payment by 31 January 2027. If you have overpaid, HMRC refunds you.
3. Who has to make them and who is exempt
You do not have to make payments on account if either of these applies:
- Your last Self Assessment tax bill was under £1,000, or
- You paid more than 80% of last year's tax at source, for example through PAYE on a salary or tax deducted from bank interest.
This is why many people with a small side income, or who are mostly employed and taxed through their payslip, never see a payment on account. It mainly affects the self employed and those with significant untaxed income, where little or no tax is collected before the return.
4. What is included and what is not
This trips people up, so it is worth being clear. A payment on account covers your Income Tax and, if you are self employed, your Class 4 National Insurance.
It does not include:
- Class 2 National Insurance
- Capital Gains Tax
- Student loan repayments
Those three are always settled through the balancing payment on 31 January, never spread across the payments on account. So if you sold an asset and have a capital gains bill, do not expect it in your July figure. It lands in full the following January, which is something to plan your cash flow around.
5. How to reduce them, and the interest trap
If you genuinely expect your 2025/26 tax bill to be lower than 2024/25, perhaps your income fell, you had a quiet year, or you have more expenses, you can apply to reduce your payments on account. You do this through your HMRC online account or by submitting form SA303.
Here is the trap. If you reduce your payments on account too far, and your actual tax bill turns out higher than the reduced amount, HMRC charges interest on the shortfall, calculated from the original due dates of 31 January and 31 July. The current late payment interest rate is 7.75%, so an over enthusiastic reduction is not free.
The rule of thumb: only reduce if you have a genuine, realistic reason to expect a lower bill, and reduce to a sensible estimate rather than to zero out of optimism. If you are unsure, it is often safer to pay in full and reclaim any overpayment later, because a refund does not carry an interest cost to you.
6. What to do before 31 July
A short checklist for the next few weeks:
- Find your figure. Check last year's tax calculation or your HMRC online account to confirm the exact second payment on account due.
- Forecast this year. Have a realistic look at your 2025/26 income compared with 2024/25.
- Decide: pay or reduce. If this year looks similar or higher, pay in full. If it is genuinely lower, consider an SA303 reduction to a sensible estimate.
- Set the money aside. If you are paying in full, make sure the cash is ready for 31 July.
- Mind the excluded items. Remember any capital gains or Class 2 will arrive separately in January, so do not spend that money now.
A worked example: Sarah, a freelance designer
Sarah's 2024/25 tax bill, including Class 4 National Insurance, was £4,000. HMRC therefore set two payments on account of £2,000 each towards 2025/26. She paid the first £2,000 on 31 January 2026, and the second £2,000 is due on 31 July 2026.
If Sarah's 2025/26 income looks similar, she simply pays the £2,000 in July. When she files, her payments on account cover most of her bill, and she settles any small difference in January 2027.
But suppose 2025/26 was a much quieter year and Sarah realistically expects a bill of only £2,400. She can apply to reduce each payment on account to £1,200, so her July payment falls from £2,000 to £1,200. If her actual bill turns out to be £2,400, she is fine. If she had cut it to zero and the real bill was £2,400, HMRC would charge 7.75% interest on the underpaid payments on account from their original due dates. The lesson is to reduce to a realistic figure, not an optimistic one.
Things to watch out for
- The first year feels like a double bill. Your balancing payment and first payment on account land together in January. It is normal, but plan for it.
- A refund is safer than an aggressive reduction. Overpay and you get it back interest free to you; underpay after reducing and you are charged interest.
- Capital gains and Class 2 are not in the July figure. They arrive in full the following January.
- Reducing is a claim, not a guess. Base any SA303 reduction on a genuine expectation, and keep a note of your reasoning.
- Filing early helps. If you file your 2025/26 return before 31 July, HMRC may recalculate the second payment on account to the correct figure automatically.
How Ollen Services Can Help
Payments on account are one of the most misunderstood parts of Self Assessment, and getting them wrong costs either cash flow or interest. We will check your exact 31 July figure, forecast your year realistically, and tell you honestly whether to pay in full or apply to reduce, so you never pay more than you need to or trigger an avoidable interest charge.
We also handle the SA303 application for you where a reduction is justified, and make sure excluded items like capital gains are planned for rather than a nasty surprise in January.
Call us on 07513 491 259 or email hello@ollenservices.co.uk. With the deadline on 31 July, a quick review now can save you money and stress.