Self Assessment: Payment on Account Explained How It Works, How to Reduce It, and What Happens If You Miss 31 July

If you file a Self-Assessment tax return and your last bill was over £1,000, you have a payment due on 31 July 2026. This is your second payment on account for the 2025/26 tax year. It is not a new bill. It is an advance instalment towards your current year's tax, based on what you owed last year.

Many sole traders, landlords, and freelancers are caught off guard by this deadline. It arrives six months after the January rush, often when cash is tied up elsewhere. But HMRC treats it with the same seriousness as any other tax deadline. Miss it and interest starts accruing from 1 August.

This guide explains how payments on account work, how to check the exact amount you owe, how to reduce it if your income has dropped, and what happens if you cannot pay on time.

What Are Payments on Account?

Payments on account are advance payments towards your Self Assessment tax bill. HMRC uses them to spread your tax liability across two instalments each year, rather than collecting everything in one lump sum in January.

Each instalment equals 50% of your previous year's total income tax and Class 4 National Insurance liability. The two deadlines are fixed every year: 31 January and 31 July.

Who has to make payments on account?

You must make payments on account if both of these applied to your previous tax year:

• Your Self Assessment tax bill was more than £1,000

• Less than 80% of your tax was collected at source (for example, through PAYE on a salary)

This rule affects most sole traders, landlords, freelancers, and company directors who take dividends. If your tax bill last year was under £1,000, or if most of your tax was already collected through your employer's payroll, payments on account do not apply to you.

What is included and what is excluded?

Payments on account cover income tax and Class 4 National Insurance only. They do not include:

• Capital gains tax

• Class 2 National Insurance

• Student loan or postgraduate loan repayments

These excluded amounts are settled separately through your balancing payment on 31 January 2027.

How HMRC Calculates Your Payment

HMRC works out your payments on account automatically from your most recent filed return. There is no estimate or forecast involved. The calculation is simple:

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How It Works 

Previous year's Self Assessment liability (income tax + Class 4 NIC): £6,000 

First payment on account (31 January 2026): £3,000 (50%) 

Second payment on account (31 July 2026): £3,000 (50%) 

If your actual 2025/26 bill is £7,500: you owe a balancing payment of £1,500 on 31 January 2027. 

If your actual 2025/26 bill is £4,500: HMRC refunds £1,500 to you. 

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You can check the exact amount due by logging into your HMRC Self Assessment online account. The figure should already reflect your most recently filed return.

The January cash-flow trap

In January, HMRC collects two things at once: your balancing payment for the year just ended, plus your first payment on account for the new year. On a £6,000 bill, that means paying £9,000 in January, not £6,000. This catches many self-employed people in their first year of payments on account.

How to Reduce Your Payment on Account

If your income has genuinely dropped since the previous year, you can ask HMRC to reduce your payments on account. This is a legitimate option and there is no penalty for using it in good faith.

There are two ways to apply:

• Online: Log into your HMRC Self Assessment account, go to your Self Assessment section, and select the option to reduce payments on account. This is the fastest route.

• By post: Complete form SA303 and send it to HMRC. Processing takes 2 to 4 weeks, so if you are using this method, submit well before 31 July.

You will need to provide a realistic estimate of your 2025/26 tax liability and a reason for the reduction. Common reasons include a drop in business income, loss of a major client, a period of illness, or increased expenses.

Be careful not to reduce too far

If your reduced payments end up being lower than 50% of your actual liability, HMRC charges interest on the shortfall from the original due dates (31 January and 31 July) until the tax is paid. The current late payment interest rate is 7.75% per year (Bank of England base rate plus 4%, effective from 6 April 2025).

There is no penalty for a genuine miscalculation. Interest is a commercial charge, not a fine. But it adds up. On a £3,000 shortfall, 7.75% interest over six months comes to roughly £116.

If you are unsure of the right figure, it is often safer to pay in full and reclaim any overpayment later. HMRC refunds overpayments after you file your return, and they do not charge you interest on the amount they held.

What Happens If You Miss the 31 July 2026 Deadline

If you do not pay by midnight on 31 July 2026, HMRC charges late payment interest from 1 August 2026 on the unpaid balance. The interest accrues daily at 7.75% per year until the full amount is cleared.

If the amount remains unpaid, further consequences follow:

On a £3,000 missed payment left unpaid for a full year, the combined interest and surcharges could add over £680 to your bill.

If You Cannot Pay: Time to Pay Arrangements

If you know you cannot pay the full amount by 31 July, contact HMRC before the deadline rather than after. You may qualify for a Time to Pay arrangement, which lets you spread the payment over several months.

You can set up a Time to Pay plan online if your bill is £30,000 or less and you are within 60 days of the payment deadline. For larger amounts, call the HMRC Payment Support Service on 0300 200 3835.

A Time to Pay agreement prevents the 5% surcharges from being applied. Interest still accrues on the outstanding balance, but the penalties are waived as long as you stick to the agreed schedule.

Filing Early Can Help

If you file your 2025/26 Self Assessment return before 31 July 2026, HMRC may automatically recalculate your second payment on account to reflect your actual liability. If your real bill is lower than expected, the July payment drops accordingly.

Filing early also gives you and your accountant more time to identify whether a reduction is appropriate, and to apply for one through the proper channels.

Common Questions

Is the 31 July payment the same as my tax bill?

No. It is an advance instalment towards next year's bill, not a final bill for the year that has just ended. Your actual bill is settled through a balancing payment the following January.

What if I have already filed my 2025/26 return?

If you filed before 31 July, HMRC should have recalculated your second payment on account. Check your HMRC online account to confirm the updated figure.

Can I pay by credit card?

HMRC accepts debit card payments through their online portal. Credit card payments are not accepted for Self Assessment. You can also pay by bank transfer, Direct Debit, or through your bank or building society.

Can my accountant handle this for me?

Yes. A registered tax agent can review your position, apply to reduce your payments on account if appropriate, submit a reduction via SA303, and manage any correspondence with HMRC.

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This article is for informational purposes only and does not constitute tax advice. All figures, rates, and deadlines are based on HMRC guidance current as of July 2026. The late payment interest rate of 7.75% is effective from 6 April 2025 (Bank of England base rate plus 4%) and may change. For advice specific to your circumstances, please speak to a qualified tax adviser.