Payments on Account: Check the 31 July Bill Before You Pay It

The second payment on account for 2025/26 is due Friday 31 July. Most of the advice written about it assumes the money is sitting there ready to go.

If it isn’t, the right starting point is a question rather than a payment plan: should the payment be that size at all?

A Quick Refresher: What Payments on Account Are

If you’re in Self Assessment, your last tax bill was £1,000 or more, and less than 80% of it was collected at source (through a tax code, for example), HMRC asks you to pay towards the current year in advance: two payments on account, one on 31 January and one on 31 July, each equal to half of last year’s income tax and Class 4 National Insurance bill. Capital gains and student loan repayments don’t repeat in the calculation — they’re settled with the balancing payment.

That last part is the bit that matters. The July payment isn’t based on how this year is actually going. It’s based on last year’s profits — whatever has happened since.

First Question: Is the Payment the Right Size?

If this year is tracking lower than last — a quieter order book, a big client gone, more costs, less profit — your payments on account may be reducible. You can make the claim yourself: online through your HMRC account (“Reduce payments on account”) or on form SA303.

Checking costs nothing, and it’s the first thing to look at before any conversation about instalments. There is no point arranging to pay a bill by monthly instalments if the bill shouldn’t be that size in the first place.

What the check involves is a hard look at this year’s numbers so far: profit to date, what the rest of the year realistically looks like, and the tax that produces. That’s ten minutes with up-to-date bookkeeping — and guesswork without it.

And because the 31 July payment relates to the 2025/26 tax year — which ended in April — there’s a cleaner route still if your figures are ready: file the 2025/26 return before 31 July. HMRC then works from your actual liability rather than an estimate, and the July payment adjusts to the real position automatically. No claim, no guesswork.

The Catch: Reduce Too Far and Interest Applies

There’s a reason to do this properly rather than optimistically. If you reduce your payments on account and your final bill turns out higher than you claimed, HMRC charges interest on the shortfall — backdated to the original due dates, at 7.75% at the time of writing.

So the reduction wants to be built on real numbers, not hope. Reduce to what the evidence supports and the claim is entirely routine. Reduce to what you’d like the bill to be and you’re borrowing from HMRC at a rate you wouldn’t choose — and a claim made carelessly or deliberately low can attract penalties on top of the interest.

One detail worth knowing: a reduction claim applies to both payments on account, not just July’s. If January’s payment now looks too high as a result, the excess is set against what you owe or repaid.

If the Figure Is Right but the Cash Isn’t There

Sometimes the payment is the right size and the bank account still disagrees. In that case, HMRC will often agree to spread the cost through a Time to Pay instalment arrangement — and for many people it can be set up online without speaking to anyone, broadly where the bill is under £30,000 and your returns are up to date.

Larger amounts, or anything less tidy, means a phone call — but the outcome is usually the same: a monthly plan you can actually meet.

One thing to know either way: interest runs from the due date, plan or no plan. Which is exactly why an early conversation costs less than a late one. Arranging instalments in July is a routine admin task; arranging them in October, after letters have started arriving, is more expensive and more stressful.

Before Friday, in Order

1. Check how this year is actually tracking

   Profit to date against last year. This decides everything else.

2. Reduce the payment if the numbers support it

   Online or by SA303 — based on evidence, not optimism.

3. If the figure’s right but cash is short, arrange instalments now

   Online for most bills under £30,000. Interest runs from 31 July regardless, so sooner is cheaper.

This post is intended as general guidance only. Interest rates and HMRC processes change. Always seek specific advice tailored to your own circumstances and refer to the latest HMRC guidance.