Self Assessment Payment on Account: What It Is and How to Avoid a July Surprise

Tax Queen

Tax Expert @ Pie

4 min read

If you are new to Self Assessment, the first time you see a payment on account on your bill can feel confusing. You have filed your return, settled what you owe, and then HMRC presents you with another charge, this time towards a tax year that has not even ended yet. For many sole traders and freelancers, this is one of the most unexpected parts of being self-employed.

A payment on account is not a penalty or a mistake. It is a standard part of the Self Assessment system, designed to collect tax in advance rather than in a single lump sum at the end of the year. Once you understand what it means and how HMRC calculates it, the whole system becomes far easier to manage.

This guide covers what payment on account means, who has to pay, whether it is compulsory, what happens in July, and what to do if your income has changed or you cannot pay the full amount on time.

What Payment on Account Means and How HMRC Calculates It

A payment on account is an advance payment towards your next Self Assessment tax bill. HMRC collects it in two equal instalments across the year, each worth half of your previous year's tax bill. The logic is straightforward: instead of owing a potentially large sum all at once, you pay in smaller amounts throughout the year so the liability does not build up unchecked.

The two HMRC payment on account deadlines fall on 31 January and 31 July each year. The January instalment coincides with your annual tax return deadline, which means in your first year of filing Self Assessment you may find yourself paying your actual tax bill and your first payment on account simultaneously. That combination is what tends to generate the most confusion and cash flow pressure. Pie gives you a live view of your running tax estimate throughout the year, so you can see exactly what is building up before either deadline arrives.

To put the payment on account meaning into a practical example: if your Self Assessment tax bill for 2024-25 was £4,000, HMRC would require two payments on account of £2,000 each, the first by 31 January 2026 and the second by 31 July 2026, towards your 2025-26 liability. Any difference between what you paid on account and what you actually owe for that year is then settled or refunded when you file your next return.

Two people reviewing financial charts and using a calculator to work out a self assessment payment on account

Is Payment on Account Compulsory?

Whether a payment on account is compulsory depends on your individual tax position. HMRC applies two exemptions that remove the requirement entirely.

You do not have to make payments on account if your Self Assessment tax bill for the previous year was under £1,000. You are also exempt if you already paid more than 80% of the tax you owed outside of Self Assessment, for example through PAYE, or because your bank deducted tax on savings interest before paying it to you.

If either of these applies, HMRC will collect everything owed in a single payment by 31 January instead. It is worth reading about how Self Assessment balancing payments work alongside HMRC payments on account, as the two are closely connected.

If neither exemption applies, then yes, payment on account is compulsory. HMRC calculates the amounts automatically from your most recent return, so you do not need to work out the figures yourself. What you do need to do is plan for them, because they will arrive whether you are ready or not.

Why the 31 July Deadline Catches People Out

The 31 January deadline receives considerable attention because it is also the filing deadline for your tax return. The 31 July HMRC payment on account deadline is different.

It arrives in the middle of summer with no return to file and no accompanying paperwork. Many sole traders forget it is coming, or have not set enough money aside to cover it.

The timing makes it particularly challenging. July can be a quieter month for seasonal businesses, and it often follows a period of higher personal spending. A significant bill landing with little warning can create real pressure on cash flow.

Building the habit of budgeting for your Self Assessment tax bill throughout the year is one of the most effective things you can do to protect yourself from this situation.

The solution is to treat your tax liability as a running total rather than an annual event. Setting aside a proportion of every payment you receive means the 31 July deadline becomes a straightforward transfer rather than a crisis. Why Pie is built differently from standard accounting tools comes down to exactly this: your live tax figure updates continuously as income and expenses come in, so you are never caught out by a deadline you did not see coming.

How to Reduce Your HMRC Payment on Account If Your Income Has Dropped

Because HMRC payments on account are based on your previous year's bill, they can significantly overstate what you actually owe if your income has fallen.

If you expect your current year's tax bill to be lower than last year's, you have the right to ask HMRC to reduce your payments on account to a more realistic figure.

You do this by submitting a claim to reduce payments on account through your HMRC online account. You will need to estimate your current year's income and tax liability as accurately as you can.

If your estimate turns out to be too low and you end up underpaying, HMRC will charge interest on the shortfall, so it is worth being careful rather than simply reducing to the lowest possible figure. Our guide to reducing your HMRC payments on account covers the process step by step.

There is no penalty for requesting a reduction provided you do so honestly and in good faith. If your income has genuinely dropped, whether because of a slow period, a change in your work, or any other legitimate reason, you are fully entitled to adjust your payments and settle any remaining balance when you file.

The deadline for submitting your return and paying any balancing payment for 2025-26 is 31 January 2027. How Pie works makes it straightforward to track exactly where your income stands throughout the year, so you can make this kind of decision with accurate figures rather than guesswork.

How to Set Up a Payment Plan If You Cannot Pay in Full

If you cannot pay your 31 July HMRC self assessment payment on account in full by the deadline, a payment plan is often the most practical route forward.

HMRC allows eligible taxpayers to spread their Self Assessment bill through weekly or monthly instalments, and any payments already made count towards the total owed.

Payment plans, sometimes called a Time to Pay arrangement, can be set up through your HMRC online account without needing to call. You will need to be up to date with your tax returns and owe a qualifying amount.

Eligibility conditions apply, and HMRC will charge interest on amounts paid after the due date, so applying before the deadline rather than after is strongly advisable. A full walkthrough of how to set up monthly payments for tax and National Insurance with HMRC is available in the Tax Pible.

It is also worth knowing that nearly 2 million Self Assessment taxpayers have used the HMRC app to make payments since January 2022. The app allows you to pay instantly, set reminders for upcoming deadlines, and view your payment history. It is worth using it alongside self-assessment software that keeps your tax position up to date so you always know what you owe and when.

The Best Protection Is a Return You Can Stand Behind

The distinction between tax evasion and an honest mistake matters enormously, but the practical message is simple. Keep accurate records, file correctly, and address errors as soon as you become aware of them. That is the approach that keeps you off HMRC's radar and in a strong position if they ever do make contact.

How Pie works is worth a look if you want to understand how self-assessment software supports that approach throughout the year, not just at filing time.

Pie is built for sole traders, freelancers, and the self-employed, helping you stay organised, categorise your income and expenses correctly, and submit a return you can be confident in. Get started with Pie and take the guesswork out of Self Assessment.