Got a Tax Payment Due in July? Here’s What It Means
There’s a Self Assessment payment deadline on 31 July that catches a lot of people out.
Most people know about the January tax deadline. It gets talked about constantly. July is different. It doesn’t feel like tax season, so it’s easier to miss or forget about.
If you have a payment due in July, it is likely to be your second payment on account.
This is one of the parts of Self Assessment that causes the most confusion, especially if you are self-employed, have a side business, earn rental income, or have a mix of PAYE and self-employed income.
What is a payment on account (POA)?
A payment on account is an advance payment towards your next Self Assessment tax bill.
HMRC looks at what you owed last year and assumes your next tax bill may be similar. It then asks you to pay some of that tax upfront in two instalments.
These are usually due by:
31 January
31 July
Each payment is normally half of your previous year’s tax bill.
So if your last Self Assessment bill was £2,000, HMRC may ask you to pay:
£1,000 by 31 January
£1,000 by 31 July
This is why the January payment can feel higher than expected. You may not just be paying the tax you owe for the year just ended.
You may also be paying the first instalment towards the next year.
Then the second instalment follows in July.
Is it extra tax?
No, not usually.
A payment on account is not a separate tax charge. It is a payment towards your next bill.
When you submit your next tax return, HMRC compares what you have already paid with what you actually owe.
If you have paid too little, you pay the difference on 31st January.
If you have paid too much, you may be due a refund or the overpayment may be offset against another amount.
The problem is that it often feels like an extra bill because of the timing. You might have dealt with your tax in January, then a few months later another payment is due.
Who might need to pay it?
Payments on account can apply if you complete a Self Assessment tax return and your tax bill is more than £1,000.
This often affects:
self-employed people
side hustlers
landlords
people with untaxed income
people who are employed and self-employed at the same time
The last one is a common source of confusion.
If you are employed, your employment income is usually taxed through PAYE. But if you also have self-employed profit, rental income, or another source of untaxed income, that part is usually dealt with through Self Assessment.
So it is possible to pay tax through your wages and still have a Self Assessment bill as well.
A simple example
Let’s say you are employed and also run a small business on the side.
Your employment tax is dealt with through PAYE.
Your side business makes a profit, and your Self Assessment tax bill comes to £2,000.
By 31 January, you may need to pay:
Tax bill for the year just ended: £2,000
First payment on account for the next year: £1,000
Total due by 31 January: £3,000
Then by 31 July, you may need to pay:
Second payment on account: £1,000
That July payment is not a new tax bill. It is the second instalment towards the next one.
Can you reduce a payment on account?
Sometimes, yes.
If you know your tax bill is going to be lower than last year, you can ask HMRC to reduce your payments on account.
This might apply if:
your profits have dropped
you have had less work
you have stopped being self-employed
your expenses are much higher
your rental income has reduced
last year included one-off income that will not happen again
This can be useful if last year’s figures are no longer realistic.
But be careful: You should only reduce payments on account if you have a reasonable estimate that your tax bill will be lower.
If you reduce them too much and it turns out you still owed the tax, HMRC can charge interest on the underpaid amount.
So it is worth checking properly before reducing anything.
What should you do before 31 July?
First, log into your HMRC account and check whether a payment is showing as due.
Do not rely on memory. Don’t assume there is nothing to pay because you haven’t received a letter.
If a payment is showing, check the amount and the deadline.
Then think about whether the amount still makes sense based on your current year’s income.
If your income is similar to last year, the payment may be about right.
If your income has dropped, it may be worth considering whether the payment can be reduced.
If you are not sure, get advice before changing it.
Don’t ignore it if you can’t pay
If you cannot afford to pay the full amount, it is better to deal with it early.
HMRC may allow you to set up a payment arrangement, depending on your circumstances. But ignoring the payment will usually make the situation more stressful, and interest may be added.
The main thing to remember
The 31 July payment is usually the second payment on account towards your next Self Assessment tax bill.
It is based on last year’s tax bill, so it may not reflect what is happening in your business right now.
Before 31 July, check:
whether a payment is due
whether the amount still looks right
whether you need to reduce it
whether you have the cash available to pay it
You do not need to be a tax expert, but you do need to know what is due and when.
That is what helps avoid the nasty surprises.
