Self Assessment Payments on Account: What the 31 July Deadline Means and How to Reduce It

If you file a Self Assessment tax return, there is a fair chance a payment is heading your way on 31 July. It catches people out every single year, usually because the amount seems to appear from nowhere. The reality is that payments on account are one of the most misunderstood parts of the UK tax system, and a little planning now can save you a stressful summer.

Here is what payments on account actually are, who has to make them, and what you can do if the figure looks higher than it should be.

What a payment on account actually is

A payment on account is an advance payment towards your next tax bill. HMRC asks for it because it does not want to wait a full year to collect tax on income that is not taxed at source, such as self-employment profits or rental income.

Rather than paying everything in one go, you pay in two instalments. The first falls due on 31 January and the second on 31 July. Each instalment is half of the tax you owed for the previous year. If you are self-employed, the payments also cover your Class 4 National Insurance.

So the payment landing on 31 July is not a new or extra tax. It is simply the second half of an estimate based on what you owed last year.

Who actually has to make them

Not everyone does. You can skip payments on account entirely if either of the following applies to you:

• The tax you owed last year was less than £1,000.

• You paid more than 80 percent of last year's tax at source, for example through your PAYE tax code or tax already deducted by your bank.

If neither applies, HMRC will expect the two payments. Your Self Assessment statement, or your online account, will show you the exact figures.

A quick example

Say your tax bill for the year came to £3,000. You would make a first payment on account of £1,500 in January and a second payment of £1,500 in July. Together those cover the £3,000 estimate for the following year.

If you end up actually owing more than the estimate, the shortfall becomes a balancing payment, due the following 31 January. If you owe less, you may be due a refund instead.

The trap that catches first-time payers

The hardest year is always the first one with payments on account. Picture your first sizeable tax bill at £3,000. In that January you pay the £3,000 itself plus a £1,500 first payment on account, so £4,500 leaves your account in one hit. Then another £1,500 follows in July.

That is a year and a half of tax landing within six months. It is completely normal, but it is brutal if nobody warned you it was coming. This is exactly why putting money aside for tax through the year matters so much.

How to reduce your payment on account

Here is the part most people miss. If you know your income has dropped, you do not have to pay an estimate built on a stronger year. You can ask HMRC to reduce your payments on account.

You can do this online through your Self Assessment account, or by post using form SA303. You tell HMRC what you expect to earn and it recalculates the two payments accordingly. The gov.uk guidance on payments on account walks through both routes.

One word of caution. If you reduce the payments too far and your actual bill turns out higher, HMRC will charge interest on the difference. So base any reduction on a realistic estimate, not wishful thinking.

What to do before 31 July

A few simple steps will keep things calm:

• Check your HMRC online account now, so the figure is never a surprise.

• If your income has fallen this year, look at whether a reduction claim makes sense.

• If cash is tight, contact HMRC early about a Time to Pay arrangement rather than missing the deadline.

• Keep money for tax in a separate pot through the year, so July never stings.

The bottom line

Payments on account are not a penalty and they are not a mistake on your statement. They are simply the tax system asking you to keep pace. The businesses that handle them well are the ones who plan ahead and treat the July payment as a known date, not a shock.

If you are not sure whether your 31 July figure is right, or you think it should be lower, this is worth a conversation before the deadline rather than after. At YF Accounting we can review your position, file a reduction claim where it is justified, and make sure you are not paying HMRC a penny more than you need to.