For many UK small business owners, January brings a familiar sense of relief after submitting a Self Assessment tax return. But just as you breathe out, another date looms quietly on the horizon – 31 July. That’s when your second Payment on Account is due.
If this concept still feels confusing or frustrating, you’re not alone. In this jargon-free guide, we’ll explain exactly what Payments on Account are, how they work, and most importantly, how to plan ahead for the July 2026 deadline without it throwing off your cash flow.
What Are Payments on Account?
Payments on Account are advance payments towards your next tax bill. HMRC uses them to spread your income tax over two instalments, based on the amount of tax you paid the previous year.
You’ll only need to make them if:
- Your last Self Assessment tax bill was over £1,000, and
- Less than 80% of your total tax was collected through PAYE
So, if you’re self-employed, a landlord, or a director with dividend income, chances are this applies to you.
When Are Payments on Account Due?
Payments are split into two equal amounts:
- First instalment: 31 January
- Second instalment: 31 July
Each payment is usually 50% of your previous year’s tax bill.
So if your 2024-25 bill was £4,000, you’d pay £2,000 in January 2026 and another £2,000 in July 2026.
Why Is There a Second Payment in July?
Many business owners assume the tax year ends in April, and they’ve dealt with everything by 31 January. But HMRC’s system is forward-looking. These two Payments on Account help cover your next tax bill-for the 2025-26 tax year.
You’ll still complete a tax return in January 2027, but if your payments on account covered the full amount, you might have nothing more to pay. If your income was higher or lower, you’ll either top up the difference or get a refund.
How to Check if You Owe a July Payment
The easiest way is to log into your HMRC online account. Your tax summary will show:
- Any outstanding balance
- When your next payment is due
- How much is expected
If you work with an accountant or use cloud accounting software like Xero, this should also be reflected in your records and planning.
What If Your Income Has Dropped?
If your income for the current year is significantly lower than last year, you can apply to reduce your Payments on Account. This helps avoid overpaying.
It’s a fairly straightforward process, but it’s important to:
- Make a realistic estimate
- Keep records to back it up
- Understand that underestimating can lead to interest or penalties later on
If you’re unsure, speak to your accountant first. It’s better to get advice than guess.
How to Plan Ahead for the July Deadline
A surprise tax bill in July can disrupt your cash flow – especially if summer is a quieter trading period. Here are five simple ways to avoid a last-minute scramble:
1. Set the Money Aside Monthly
Divide the expected July payment over the next six months and move that amount into a separate savings account. Treat it like a non-negotiable cost.
2. Use a Cash Flow Forecast
If you’re not already forecasting your cash flow, now’s the time. Plug in the July deadline and other key dates, so you can spot any pinch points early.
3. Stay on Top of Invoicing
Chasing late payments is no one’s favourite task, but a few outstanding invoices can make the difference between comfortably paying HMRC or falling short.
4. Factor It into Pricing
If you’re reviewing your prices in early 2026, don’t forget to consider tax and cash flow. Even small adjustments can add up.
5. Use Accounting Software to Track It
Tools like Xero help you stay aware of upcoming liabilities and avoid surprises. They can also send reminders, generate reports, and show you where you stand in real time.
What Happens If You Miss the July Deadline?
HMRC will charge interest on late payments, currently at a rate that can feel painful. If the payment is more than 30 days late, additional penalties may apply.
If you genuinely can’t pay, it’s best to contact HMRC early. They may agree to a Time to Pay arrangement, allowing you to spread the cost.
Avoid ignoring it – that only makes the situation harder and more expensive.
Final Thought: Don’t Let the July Deadline Creep Up on You
Now that January’s behind you, it’s tempting to switch off from tax until next year. But planning now for your July Payment on Account can save you stress, surprise and strain on your finances later.
It’s not just about paying a bill -it’s about staying in control of your business.
Need Help Understanding or Managing Payments on Account?
Our team at Blue Spire works with small business owners across Chichester and beyond to make tax planning simple and stress-free. Whether you need help reducing your payment, forecasting cash flow, or setting up a monthly plan, we’re here to support you.
| Give us a call, drop us an email, or pop into our city centre office — we’ll take the stress out of it, so you can focus on growing your business. |
