Payments on Account Explained: How to Calculate, Reduce, and Plan for the 31 July 2026 Deadline

Payments on Account Explained: How to Calculate, Reduce, and Plan for the 31 July 2026  Deadline 

If you complete a Self Assessment tax return and your bill last year was over £1,000, you have a  second tax payment coming up. The deadline is 31 July 2026. This payment surprises a lot of  people, especially those new to self-employment. 

This guide explains exactly what payments on account are, how HMRC works them out, and  how to reduce them if your income has dropped. Every figure here is based on official HMRC  guidance, current as of May 2026.

What Are Payments on Account? 

Payments on account are advance payments towards your Self Assessment tax bill. HMRC uses  them to collect tax in instalments rather than as one large annual payment. 

You make two payments each year, each equal to half your previous year's tax liability. HMRC  assumes your income will be similar from one year to the next. If your actual bill ends up  higher, you make a balancing payment in January. If your actual bill is lower, HMRC refunds the  difference. 

Who has to make payments on account? 

According to HMRC, you will need to make payments on account if both of the following apply: • Your last Self Assessment tax bill was more than £1,000. 

• Less than 80% of your tax was collected at source (for example, through PAYE or a bank  deducting interest). 

This rule affects most sole traders, landlords, freelancers, and company directors who take  dividends. If your tax bill last year was £999, you are not in the system. At £1,001, you are.

How Are Payments on Account Calculated? 

The maths is simple. Each payment on account is 50% of your previous year's total Self  Assessment liability (excluding Capital Gains Tax and any student loan repayments).

The January cash-flow trap 

On 31 January 2026, Sarah's actual payment to HMRC is not £6,000. It is £9,000. This is because  the January deadline combines two things: her balancing payment for the previous tax year,  plus her first payment on account for the new tax year. 

Many self-employed people are caught out by this in their first January after crossing the  £1,000 threshold. Planning ahead is the difference between a comfortable cash flow and a  panicked phone call to HMRC. 

Key Dates for the 2025/26 Tax Year 

Here is the full timeline for anyone making payments on account this year:

How to Reduce Your Payments on Account 

If your income has dropped since the previous tax year, you can ask HMRC to reduce your  payments on account. This is helpful if you have changed jobs, taken a career break, lost a  major client, or had a period of illness. 

You can submit a reduction request in two ways: 

• Online through your HMRC Self Assessment account, under the option to reduce  payments on account. 

• By post, using form SA303, which you can download from GOV.UK. 

You will need to provide an estimate of your reduced tax liability and a reason for the change.  HMRC will then adjust both your 31 January and 31 July payments. 

Warning: do not reduce too much 

If you reduce your payments below the actual amount that ends up being due, HMRC charges  interest on the shortfall from the original payment dates. As the Low Incomes Tax Reform  Group explains, a deliberate or excessive reduction can also lead to a penalty.

The interest rate is set in legislation at the Bank of England base rate plus 4%. With the base  rate at 3.75% from January 2026, that puts the late payment interest rate at 7.75% per year. On  a £5,000 shortfall, that is £387.50 in interest over twelve months. 

What Happens If You Miss the 31 July 2026 Deadline? 

Missing your second payment on account has two consequences. Both apply automatically.

If you genuinely cannot pay, contact HMRC before the deadline rather than after. You may  qualify for a Time to Pay arrangement, which spreads the payment over a few months without  penalties (although interest still applies). 

How to Plan Ahead for Future Payments 

Cash flow is the real challenge with payments on account. The amounts can be substantial, and  they arrive twice a year regardless of how business is doing that month. 

A few practical habits make a noticeable difference:

• Set aside tax money weekly or monthly. As a rough guide, sole traders should put aside  25 to 30% of profit into a separate account. Higher earners should push this closer to  40%. 

• File your tax return early. If you file before 31 July 2026, you may know your actual  liability before the second payment is due and can request a reduction in time. • Use HMRC's budget payment plan. This lets you make weekly or monthly direct debits  towards your next Self Assessment bill, smoothing out the cash impact. 

• Track changes in income through the year. If trading drops significantly, do not wait  until January. Apply to reduce payments at the time the change happens. 

Common Questions About Payments on Account 

Do payments on account cover National Insurance? 

They cover your Income Tax and Class 4 National Insurance contributions. They do not cover  Class 2 NICs, Capital Gains Tax, or student loan repayments. Those are settled separately  through your balancing payment in January. 

Will payments on account change under Making Tax Digital? 

No. Payments on account continue to apply under Making Tax Digital for Income Tax, which  becomes mandatory for sole traders and landlords with qualifying income over £50,000 from  April 2026. The quarterly reporting under MTD does, however, give you a clearer real-time  picture of your liability throughout the year. 

Can someone else manage payments on account for me? 

Yes. A registered tax agent can handle the full process for you: estimating your liability,  submitting reduction requests, making payments on time, and managing any Time to Pay  arrangements with HMRC.

Speak to a Taxez Tax Adviser 

This article is for informational purposes only and does not constitute tax advice. Figures and rates are based on  HMRC guidance current as of May 2026. The HMRC late payment interest rate is linked to the Bank of England base  rate and may change. For advice specific to your circumstances, please speak to a qualified tax adviser.