With the 31 July deadline fast approaching, now is a good time to check whether you have a second Payment on Account to make towards your Self Assessment tax bill.
Many taxpayers are surprised to receive a payment demand in July, particularly if they have already paid tax in January. However, for many self-employed individuals and landlords, payments on account form part of HMRC's normal method of collecting Income Tax throughout the year.
Why are we reminding you?
The deadline for the second Payment on Account for the tax year 2025/26 is 31 July.
If you have a payment due, it must reach HMRC by this date to avoid late payment interest.
What are Payments on Account?
Payments on account are advance payments towards your next Income Tax bill.
Rather than waiting until your Self Assessment tax return is submitted, HMRC collects part of your tax liability in advance.
There are usually two payments on account each year:
- The first payment is due on 31 January during the tax year.
- The second payment is due on 31 July following the end of the tax year.
Once your Self Assessment tax return has been submitted, HMRC calculates your actual tax liability. Any difference between the payments already made and the final tax due is collected (or refunded) as part of your balancing payment.
Did you know?
If your Self Assessment tax bill (excluding Capital Gains Tax and Student Loan repayments) is more than £1,000, and less than 80% of your Income Tax has already been collected at source (for example through PAYE), HMRC will normally require you to make Payments on Account towards the following year's tax bill.
How are Payments on Account calculated?
Each payment on account is normally 50% of your previous year's Income Tax and Class 4 National Insurance liability, after deducting tax already collected at source (for example through PAYE).
Payments on account do not include:
- Capital Gains Tax
- Student Loan repayments.
What if your income has fallen?
If you expect your Income Tax and Class 4 National Insurance liability for the tax year to be lower than the previous year, you may be able to apply to reduce your Payments on Account.
This can be helpful if your business profits have fallen or your circumstances have changed.
However, any reduction should be made with care. If the payments are reduced too far and additional tax is ultimately due, HMRC will charge late payment interest at its prevailing rate on the shortfall. In some cases, penalties may also apply where payments have been reduced negligently or deliberately.
If you're unsure whether your payments can be reduced, please speak to us before making a claim.
What happens if you don't pay?
If your payment is not made by 31 July, HMRC will charge late payment interest at its prevailing rate from 1 August until the outstanding amount is paid.
From 6 April 2027, HMRC will introduce a new late filing and late payment penalty regime for all Self Assessment taxpayers, aligning it with the Making Tax Digital (MTD) penalty system.
What it means for you
If you complete a Self Assessment tax return, now is the time to check whether you have a Payment on Account due on 31 July.
You should make sure that:
- you have no payment due, or
- any payment due is paid by 31 July.
If your income has reduced since last year, you may be able to reduce your Payment on Account. However, this should only be done where it is properly supported, as interest (and potentially penalties) may apply if too little tax is paid.
If you're unsure whether you have a payment to make, or would like us to review whether your Payments on Account can be reduced, please get in touch. We'd be happy to help.