The second Self Assessment payment on account is due on 31 July, and many self-employed people, landlords and company directors will simply pay the amount stated in their letter from HMRC.
But it’s worth checking whether that figure still reflects your current circumstances. Your July payment is based on your previous tax bill, so if your income has fallen since then, you could be paying more tax than you need to at this stage.
Why your July payment may no longer be accurate
Payments on account are advance payments towards your next Self Assessment tax bill. They are usually paid in two instalments, on 31 January and 31 July, with each payment based on 50% of your previous year’s tax liability (excluding certain items such as Capital Gains Tax).
For many taxpayers, this works perfectly well – but it assumes your income remains at roughly the same level each year.
The payment due on 31 July 2026 is based on your 2024–25 tax return. If your income has reduced during 2025–26, that calculation won’t reflect what you’ll actually owe.
Could a lower payment be appropriate?
There are plenty of reasons why your income might have fallen since your last tax return. Perhaps you’ve had a quieter trading year, lost a key client, reduced your working hours or seen rental income fall. You may even have retired or completely stepped back from the business.
These situations could make your payment on account higher than your eventual tax bill.
Although any overpayment would be credited against your final liability or refunded later, paying more than necessary now might put pressure on cash flow.
Asking HMRC to reduce your payment
If you expect your tax bill for 2025–26 to be lower than the previous year, you can apply to reduce your payments on account.
This can be done through your online Self Assessment account by selecting “Reduce payments on account”, or by submitting form SA303.
For anyone whose income has genuinely fallen, reducing the payment can help keep more cash in the business until the final tax bill is due.
Be realistic with your estimate
Before reducing your payment, make sure your estimate is based on reliable figures.
If you reduce your payments too much and your final tax bill is higher than expected, HMRC will charge interest on the shortfall. It’s therefore important not to base the reduction on a rough guess.
If you’re unsure, speak to your accountant before making the change. We can help you avoid an unexpected bill later.
Consider filing your tax return early
Many people leave their Self Assessment tax return until close to the January deadline, but once the tax year has ended and you have the necessary information, there’s no reason to wait.
Submitting your 2025–26 tax return early allows HMRC to calculate your actual tax liability. If your payments on account need adjusting, they’ll be updated automatically, so you no longer need to estimate your income yourself.
If your earnings have fallen, this can be the simplest way to make sure the July payment reflects your actual tax position.
A quick review could save you money
If your income has changed over the past year, it’s worth checking whether your payment on account is still appropriate before the 31 July deadline.
To understand what this means for you, get in touch. As Peterborough accountants we’ll take a look at your figures and advise on the best approach.
