Your Second Payment on Account Is Due on 31 July — Here's What It Actually Is (and How to Pay Less)

Every July, I get a version of the same message: "HMRC says I owe more tax. Didn't I already pay in January?"

You did. And no, you're not being charged twice. But the payment on account system is one of the most badly explained corners of self-assessment, so it's no wonder it catches people out year after year.

Your second payment on account is due on 31 July. Let me clear up what that actually means, and show you where there might be money to save.

What a payment on account actually is

A payment on account is HMRC asking you to pay next year's tax bill in advance.

Rather than waiting for you to file your return and pay in one lump, HMRC assumes you'll earn roughly what you earned last year, and collects that estimated tax early, in two instalments:

• The first on 31 January (at the same time as your actual bill for the year just gone)
• The second on 31 July

Each instalment is 50% of your previous year's tax bill. So if last year you owed £4,000, HMRC asks for two payments on account of £2,000 each, towards the year you're currently in.

When you eventually file and your real figure is known, it all gets trued up. Underpaid? You settle the difference. Overpaid? You're refunded or credited.

That's the whole idea. You're not paying extra tax. You're paying the same tax, earlier.

(Worth knowing: not everyone has to do this. You're off the hook if your last tax bill was under £1,000, or if more than 80% of your tax was already collected at source, through PAYE for example. If that's you, enjoy your July.)

Why January felt so brutal

Here's the part that genuinely trips people up, especially in their first year or two of self-assessment.

Your January payment wasn't one thing. It was two stacked together:

• The balancing payment for the tax year you'd just finished, plus
• Your first payment on account for the year you're now in.

So if you were new to it, your "first tax bill" was quietly about half as big again as you were expecting. Brutal, and almost nobody warns you in advance.

The good news: the 31 July payment is simply the second half of that advance. No nasty extras this time. It's the instalment you already knew about, even if it never felt like it.

The part with money in it: you might be able to pay less

This is the bit worth reading twice, because it's where I see people overpay year after year.

Your payments on account are based on last year. But you don't live in last year.

If your income this year is lower (a quieter spell, a big client gone, fewer projects, or a deliberate step back), then paying 50% of last year's bigger bill means you're handing HMRC money you'll only have to claw back later as a refund.

You don't have to. You can apply to reduce your payments on account so they reflect what you'll genuinely earn.

For anyone with lumpy, project-based income, which is most of the creative businesses I work with, this is one of the simplest and most overlooked ways to keep cash in your business when you actually need it.

One honest warning, though, because this isn't a free lever. If you reduce your payments too far and it turns out you earned more than you guessed, HMRC charges interest on the shortfall, backdated to the original due dates. So the aim isn't to lowball it. It's to make a realistic estimate of a genuinely quieter year. Done sensibly, it's smart cashflow management. Done over-optimistically, it's an interest bill you didn't need.

Getting that balance right is exactly the sort of thing worth a quick check before you commit to a number.

What if you can't pay?

If 31 July is looming and the money isn't there, the worst thing you can do is go quiet.

HMRC would far rather agree a plan than chase you, and they offer Time to Pay arrangements that let you spread the cost over manageable instalments. The trick is to sort it before the deadline, not after. Acting early keeps you in control and keeps penalties and interest to a minimum.

There are always options. Silence just isn't one of them.

What to do before 31 July

A short checklist:

• Log into your HMRC account and check the figure that's actually due. Don't guess.
• Pay by 31 July, leaving a few days for the payment to land.
• If this has been a leaner year than last, consider whether reducing your payments on account is right for you, ideally with a sanity-check first so you don't stray into interest territory.

And the honest truth: this is exactly the kind of thing a good accountant should flag for you, in good time, every single year, rather than leaving you to discover it in a panic in late July. If yours didn't, that tells you something.