Most people who fill in a self-assessment tax return brace themselves for one deadline: the 31st of January. The second one, on the 31st of July, slips past unnoticed until a brown envelope or a Government Gateway email lands and asks for several hundred pounds with about five weeks' warning. That second bill is the payment on account, and for anyone who started doing freelance work, picked up a side income, or crossed into the higher-rate band in the 2024/25 tax year, this is the summer it bites for the first time.
HMRC built payments on account to stop people owing a full year's tax in one lump. The logic is reasonable. The execution catches people out, because the system assumes next year's income will look like last year's, takes half of last year's tax bill, and asks for it on account before you've earned the money it's based on. If your income has dropped, you can be paying tax on earnings that never arrived. If you've never seen the demand before, it can feel like being billed twice for the same year.
What the 31 July payment on account actually is
If your self-assessment bill for 2024/25 came to more than £1,000, and less than 80% of your tax was collected at source through PAYE, HMRC asks you to make two advance payments towards your 2025/26 bill. Each one is half of your 2024/25 liability. The first fell due on the 31st of January 2026, bundled in with the balancing payment for the previous year. The second is due on the 31st of July 2026.
Here is the part that trips people up. Say your tax bill for 2024/25 was £3,000. On the 31st of January you paid that £3,000 plus a first payment on account of £1,500 — a £4,500 total. Now, on the 31st of July, a second £1,500 is due. You will have handed HMRC £6,000 across the two dates, even though only £3,000 of it settles a bill you can actually see. The other £3,000 is a down payment on a year that hasn't been assessed yet. The maths is correct; it just doesn't feel like it the first time it happens.
The £1,000 threshold is the trigger most people forget about. Cross it once and you're in the payment-on-account system; the following year, even a modest bill keeps you there. Plenty of new landlords, eBay and Vinted sellers who tipped over the £1,000 trading allowance, and salaried workers who took on consultancy fall into this bracket without ever clocking that they've joined it.
Can you reduce the July payment?
Yes, and this is the single most useful thing to know before the deadline. If you genuinely expect your 2025/26 income to be lower than 2024/25 — a contract ended, a tenant left, you went back to a salaried job — you can apply to reduce your payments on account. You do it through your HMRC online account, or on form SA303, and you can do it right up to the 31st of July.
But be careful with the temptation to just knock it down to nothing. HMRC charges interest on any payment on account you reduce too far. From late 2024 the rate has tracked the Bank of England base rate plus 2.5 percentage points, and with the base rate sitting at 4.25% after the Bank held it in June 2026, that puts the late-payment interest rate at roughly 7.5% — higher than most savings accounts will pay you. Reduce your payment to £500 when the real figure turns out to be £1,400, and HMRC will charge you interest on the shortfall from the date it was originally due. The honest estimate is the cheap one.
So work out a realistic figure rather than a hopeful one. If your income is genuinely down by a third, reduce by roughly a third. If you have no idea yet because the year is only half over, it is usually safer to pay the full amount and reclaim any overpayment later — overpaid tax comes back to you with interest at the base rate minus 1%, which is at least something.
What to do if you can't pay by 31 July
This is where a lot of people make their situation worse by going quiet. HMRC's Time to Pay arrangement lets you spread a self-assessment bill over monthly instalments, and you can set one up yourself online without phoning anyone if you owe less than £30,000 and you're within 60 days of the deadline. The interest still runs at the 7.5%-ish rate, but you avoid the late-payment penalties that stack up on top — 5% of the unpaid tax at 30 days, again at six months, and again at twelve.
A few practical moves worth making before the date, in rough order of priority:
- Log in to your HMRC account now and check the actual figure due — don't wait for a paper statement, which can arrive late.
- If the number is wrong because your income has fallen, file the reduction before the 31st rather than paying and arguing later.
- If you can pay but it's tight, a current account with a decent interest rate or an easy-access saver paying 4%+ will at least earn something on the money until the day it leaves.
- If you genuinely can't pay, set up Time to Pay early — the interest is the same whether you arrange it on the 1st of July or the 30th, but arranging it stops the penalty clock.
- And keep the receipt or reference number for whatever you do; HMRC's records and yours don't always agree, and you'll want proof.
One thing genuinely worth doing this year that wasn't a factor a few years ago: check how much of your tax bill is being driven by savings interest. With the personal savings allowance frozen at £1,000 for basic-rate taxpayers and £500 for higher-rate, and savings rates having sat near 4–5% for two years, a lot of people are now earning enough interest to owe tax on it for the first time. That interest can quietly inflate your self-assessment bill — and therefore your payments on account — without any change to your actual work income.
How this connects to the wider tax-year picture
The July payment doesn't sit in isolation. It's the midpoint of a cycle that runs from one April to the next, and the choices you make now ripple into next January's bill. If you reduce your July payment, you'll likely face a larger balancing payment on the 31st of January 2027 to make up the difference — so reducing isn't free money, it's deferred money, and sometimes deferred money with interest attached. Treating the two payments as a pair rather than two separate shocks is the mental shift that makes the whole thing manageable.
It's also worth lining this up against the allowances that reset on the 6th of April. A fresh £20,000 ISA allowance, the £1,000 trading allowance, the £1,000 property allowance for small rental income, and the dividend allowance — now down to £500 — all interact with what eventually lands on your self-assessment. If you're self-employed and you've not yet used this year's ISA room, moving the money you've set aside for tax into an easy-access cash ISA earns interest tax-free until the deadline, rather than generating more taxable interest that feeds back into next year's bill. It's a small loop, but for higher-rate taxpayers paying 40% on savings interest above £500, it's not nothing.
And keep an eye on Making Tax Digital. From April 2026, self-employed people and landlords with qualifying income over £50,000 have to keep digital records and send HMRC quarterly updates rather than one annual return. If that's you, the rhythm of payments and reporting is changing under your feet this very tax year — which makes getting into the habit of setting money aside monthly less of a nicety and more of a necessity.
Why the second bill feels worse than the first
January's deadline at least lines up with the end of the calendar, when most people are braced for money to go out. July doesn't. It lands in the middle of the summer holidays, alongside childcare costs, the energy direct debit that hasn't dropped as much as you hoped, and a payday that's no bigger than usual. HMRC doesn't soften the demand to account for the season, and the amount is identical to January's payment on account — so if January stung, July will sting exactly as much.
The fix isn't clever. It's mechanical. Open a separate savings account, label it "tax", and move a fixed percentage of every freelance or self-employed payment into it the day it arrives — somewhere around 25–30% for basic-rate earners, more if you're into the higher band. The money sits there earning 4%-odd until each deadline, and the brown envelope stops being a shock. People who do this never think about payments on account as a crisis; they just transfer money they'd already set aside. People who don't spend every July wondering how a bill they half-knew about still managed to ambush them.