Payments on account: why HMRC wants money from you by 31 July
Every July, thousands of self-employed people get an unpleasant surprise: HMRC wants money in the middle of summer, months before any tax return is due. It is called a payment on account, the deadline is 31 July, and if you were not expecting it, here is exactly how it works and what you can do about it.
What payments on account are
If your last Self Assessment bill was over £1,000 and less than 80% of your tax was collected at source, HMRC makes you pay next year’s tax in advance, in two instalments. Each is half of last year’s income tax and Class 4 National Insurance bill. The first is due 31 January, alongside any balance for the year just filed. The second is due 31 July.
The first-year shock
The system is hardest the first time you cross the threshold. Say your first bill is £4,000. On 31 January you pay that £4,000 plus £2,000 as the first payment on account: £6,000 at once. Then another £2,000 on 31 July. You have paid £8,000 against a £4,000 bill, and the extra £4,000 simply sits as credit against the next year. Nobody warns people about this, and it sinks cash flow plans every year.
If your income has dropped, you can reduce them
Payments on account are based on last year, so if this year is going worse, you can apply to reduce them, online through your tax account or via form SA303. Be careful: if you reduce them below what your final bill turns out to be, HMRC charges daily interest on the shortfall, backdated. Reduce with evidence, not optimism. This is exactly the kind of call your accountant should be making with you in June, not discovering in January.
Three things worth knowing
First, filing your return early does not move the 31 July date, but it can shrink the payment: if your actual bill is lower than last year’s, filing before July recalculates the instalment. Second, payments on account do not cover capital gains or student loan repayments, so those can still produce a January balance. Third, the new Making Tax Digital quarterly updates do not replace payments on account: the quarterly submissions are information, the July payment is cash.
Before 31 July
Check your HMRC account for the exact amount due, pay by the 31st to avoid interest, and if this year’s income is genuinely down, get the reduction claim in first. All the year’s dates in one place: our UK tax deadlines page, with a free printable rates card.
If your July payment caught you off guard, that is a planning failure, not a personal one. We include Self Assessment and year-round planning in every package, from £115 a month, or a standalone return at £349 fixed. Get your fee in 60 seconds or book a free consultation.
