Self Assessment Payments on Account: 31 July 2026

Your second Self Assessment payment on account for 2025-26 is due by 31 July 2026. Each payment is 50% of last year's tax bill. You can reduce it if your income has fallen, but reduce it too far and HMRC charges interest at 7.75% on the shortfall.

If you complete a Self Assessment tax return, 31 July is a date worth a diary entry. It is the deadline for your second payment on account, and for many owner-managers it arrives as an unwelcome surprise.

A payment on account is not an extra tax. It is an advance towards a bill you have not yet been assessed for. The system asks you to pay this year's tax in two instalments, before the year is even filed.

This post explains what a payment on account is, who has to make one, and how to reduce it without walking into an interest charge. It echoes the format of our P11D deadline guide: one date, the rules behind it, and the traps.

Who this applies to

• Sole traders and partners who pay tax through Self Assessment.
• Company directors with dividend or other income not fully taxed at source.
• Landlords and anyone with significant untaxed income.
• Anyone whose last Self Assessment bill was over £1,000.

What a payment on account is

A payment on account is an advance instalment towards your next Self Assessment bill, based on the assumption that this year's income will be similar to last year's. HMRC sets this out in its guidance on understanding your Self Assessment bill.

You make two payments on account for a tax year. The first is due on 31 January (alongside the previous year's balancing payment), and the second on 31 July. Each one is half of your previous year's tax bill.

So the payment due on 31 July 2026 is the second instalment towards your 2025-26 liability, calculated as 50% of your 2024-25 bill.

Who has to make one: the £1,000 rule

You are asked to make payments on account unless one of two things is true. You do not have to pay them if your last Self Assessment bill was less than £1,000, or if more than 80% of the tax you owed for that year was already collected at source, for example through PAYE.

If your bill was over £1,000 and less than 80% was taxed at source, payments on account apply. This is why a first year of self-employment so often feels like a double hit: you pay the year's balancing amount and the first payment on account towards the next year on the same January date.

How to reduce a payment on account

Payments on account assume your income is steady. When it is not, you can ask HMRC to reduce them.

If you know your 2025-26 income has fallen below 2024-25, you can apply to reduce both payments on account using form SA303, online through your HMRC account or by post. You tell HMRC the lower figure you expect to owe, and the payments are recalculated.

This is a genuine relief for businesses having a leaner year. If your engineering firm won less work, or you took lower dividends, there is no reason to lend HMRC money you will only have to reclaim.

The interest trap if you reduce too far

There is a catch, and it has teeth. If you reduce your payments on account below what you actually end up owing, HMRC treats the shortfall as having been due all along. Interest runs on the underpaid amount from the original due dates, not from the date the truth came out.

HMRC's late payment interest rate is 7.75% from 9 January 2026, set at the Bank of England base rate plus 4%. That is a meaningful cost on a reduction made too optimistically.

The honest approach is to reduce to a realistic estimate, not the figure you are hoping for. If in doubt, reduce less, because overpaying earns you repayment interest while underpaying costs you 7.75%.

Reduce, don't reduce, or pay in full

Your situation	Sensible action	The risk
Income broadly the same as last year	Pay the instalment in full	None
Income clearly lower, confidently estimated	Reduce via SA303 to a realistic figure	Interest at 7.75% if you under-estimate
Income lower but hard to predict	Reduce modestly, keep a margin	Small interest cost is better than a large one
Income higher than last year	Pay in full, budget for the balancing payment	A larger bill lands next January

Worked example

Assumptions. Priya is a sole trader. Her 2024-25 Self Assessment bill was £12,000. None of her income is taxed at source, so payments on account apply.

The standard position. HMRC sets two payments on account towards 2025-26 of £6,000 each. The first was due 31 January 2026. The second, £6,000, is due 31 July 2026.

Her 2025-26 reality. Trade slowed and Priya expects her 2025-26 bill to be around £8,000, not £12,000. She files an SA303 to reduce each payment on account to £4,000.

If her estimate is right. She pays £4,000 in January and £4,000 in July, matching her £8,000 liability. No balancing payment, no interest.

If she over-reduced. Suppose her actual bill turns out to be £10,000. She underpaid by £1,000 on each instalment. HMRC charges interest at 7.75% on those shortfalls from 31 January and 31 July respectively, until she pays the £2,000 balance. A modest miscalculation, a real cost.

Lexmore's View

Payments on account are not a penalty, and they are not optional for most owner-managers. The discipline is to treat the July instalment as already owed, and to base any reduction on numbers you can stand behind.

Reduce where your income has genuinely fallen. Keep a sensible margin where it is uncertain. At 7.75%, the interest on an over-optimistic reduction outweighs the short-term cash benefit of holding the money back. Realistic estimate. Sensible margin. No surprises in January.

References

• GOV.UK, Understand your Self Assessment tax bill: payments on account
• GOV.UK, Pay your Self Assessment tax bill
• GOV.UK, HMRC interest rates for late and early payments
• GOV.UK, Income Tax: how you pay