Your second payment on account for the 2025-26 tax year is due by midnight on 31 July 2026. That payment is based on what you earned the year before, so if your income fell this year, you could be handing HMRC more than you actually owe. You can ask to reduce it. But get the number wrong and you'll pay interest on the shortfall.
TL;DR: Payments on account are two advance instalments towards your next Self Assessment bill, each equal to half of last year's tax, due 31 January and 31 July. The second 2025-26 instalment lands on 31 July 2026. If your income dropped, you can reduce both payments online or with form SA303, but under-reducing triggers HMRC interest at 7.75%.
What Are Payments on Account?
Payments on account are advance payments towards your next Self Assessment tax bill. HMRC splits the amount into two instalments so you spread the cost across the year instead of paying it all in one go. For self-employed taxpayers, each instalment also covers Class 4 National Insurance (GOV.UK).
The catch is that the amount is an estimate. HMRC assumes you'll earn roughly the same as last year, so each instalment is set at half of your previous year's tax bill. If your income holds steady, that works out neatly. If it drops, you end up overpaying and waiting for the money back. In our experience, this is the single most common reason clients pay HMRC more than they need to.
When Is Your Next Payment on Account Due?
The second payment on account for the 2025-26 tax year is due by midnight on 31 July 2026. The first instalment fell on 31 January 2026, alongside any balancing payment for the year before.
Both dates are fixed every year: 31 January and 31 July. The January payment doubles up as the deadline for filing your return and settling any balancing payment, which is why it feels heavier. The July payment is a standalone instalment with nothing else attached to it, so it's easy to forget it's coming. Miss it and HMRC starts charging late payment interest from the day after.
Do You Have to Make Payments on Account?
Not everyone does. HMRC only asks for payments on account if two conditions are met. Your last Self Assessment bill was £1,000 or more, and less than 80% of your tax was collected at source, for example through your PAYE tax code or by your bank deducting tax on savings interest (GOV.UK).
If either of those doesn't apply, you settle your bill in a single annual payment on 31 January and skip the instalments entirely. This is why an employed director with a small dividend top-up often escapes payments on account, while a full-time sole trader almost always faces them. If you're weighing up how you take your income, our guide on director salary versus dividends walks through the trade-offs.
How Are Payments on Account Calculated?
Each payment on account is half of your previous year's tax bill. Say your 2024-25 bill came to £3,000. You'd make two payments of £1,500, one on 31 January 2026 and one on 31 July 2026, towards your 2025-26 liability (GOV.UK).
If your actual 2025-26 bill then comes in higher than £3,000, the extra is a balancing payment due on 31 January 2027, on top of your first payment on account for 2026-27. If it comes in lower, you've overpaid and can claim the difference back. One question clients always ask is whether the instalments include the current year's higher earnings. They don't. The figure is anchored entirely to last year, which is exactly why reducing matters when your income has fallen.
Can You Reduce Your Payments on Account?
Yes. If you know your income this year will be lower than last year, you can ask HMRC to reduce both payments on account to match what you actually expect to owe.
There are two ways to do it. Online is quickest: sign in to your HMRC account, open your latest Self Assessment return, and select "Reduce payments on account." By post, you send form SA303 to your tax office. Either way, you tell HMRC the revised figure you expect to owe, and it recalculates both instalments. What we see most often is clients reducing after a year with fewer contracts, a maternity break, or a large one-off gain in the prior year that won't repeat.
The Risk of Reducing Too Much
If you reduce your payments and your actual bill turns out higher than the figure you gave, HMRC charges interest on the difference. The late payment interest rate is 7.75%, set at the Bank of England base rate plus 4% since 6 April 2025 (GOV.UK).
The interest runs from the original payment date, not from when you file, so an over-optimistic reduction can cost you months of charges. You won't be penalised for a good-faith estimate that turns out slightly low. You'll simply pay interest on the shortfall. If you overpay because you didn't reduce far enough, HMRC pays you repayment interest at 2.75%, a poor rate compared with what you'd earn holding the cash yourself.
When Reducing Makes Sense
Reducing is worth doing whenever your income has genuinely fallen and you can back up the lower figure. A contractor who lost a major client, a landlord who sold a property last year, a business that had an exceptional year followed by a normal one: all good candidates.
Base your reduction on a realistic forecast, not wishful thinking. If your books already show earnings tracking below last year by June, that's solid evidence for the July instalment. The safest approach is to run a rough calculation of your expected liability before the deadline, then reduce to that number rather than guessing. If you're unsure how much room you have, it's worth checking before 31 July rather than after.
Frequently Asked Questions
Can I reduce my payment on account after the 31 July deadline?
You can submit a reduction claim at any point until 31 January 2027 for the 2025-26 year. If you reduce after paying, HMRC refunds the overpayment. But you can't undo interest that has already accrued on a late instalment, so acting before 31 July is cleaner.
What if I've paid too much already?
If your final bill is lower than the two payments you made, you've overpaid. HMRC either refunds the balance or sets it against your next payment on account. You claim it through your Self Assessment return or your online account.
Do payments on account apply in my first year of Self Assessment?
Yes, and this catches people out. In your first year you pay the full tax bill plus your first payment on account towards the next year, all on 31 January. That can feel like paying 150% of your bill at once, so set the money aside early. If you're weighing up your trading structure, our guide on sole trader versus limited company covers the wider picture.
Will reducing my payments trigger an HMRC enquiry?
No. Reducing payments on account is a routine, expected process built into the system. HMRC only takes issue if the reduction is clearly unrealistic and leaves a large shortfall. A reduction backed by your actual figures is exactly what the mechanism is for.
Not sure whether to reduce your July payment or by how much? Talk to our team - we'll run a quick forecast of your 2025-26 liability and tell you the safe number to reduce to before the 31 July deadline. We work with sole traders and company directors across the UK, and can take the guesswork out of your Self Assessment payments. If you're also getting ready for the shift to quarterly reporting, our MTD for Income Tax guide explains what changes next.