July 2026 Payment on Account: How to Reduce Your Self Assessment Tax Bill Legally

If you’re self-employed or pay tax through Self Assessment, there’s an important deadline you shouldn’t overlook. The second payment on account for the 2025/26 tax year is due on 31 July 2026.

Many taxpayers automatically pay the amount requested by HMRC without checking whether it’s still accurate. However, if your income has fallen during the year, you may be able to reduce your payment on account and improve your cash flow without breaking any tax rules.

Here’s what you need to know before making your July payment.

What Is a Payment on Account?

A payment on account is an advance payment towards your next Income Tax and Class 4 National Insurance bill.

HMRC normally requires these payments if:

• Your previous Self Assessment tax bill was £1,000 or more, and
• Less than 80% of your tax was collected at source, such as through PAYE.

Each payment is usually 50% of your previous year’s Income Tax and Class 4 National Insurance liability.

The payment dates are:

• 31 January during the tax year
• 31 July after the end of the tax year

Any remaining tax due is then settled through a balancing payment by 31 January following the end of the tax year.

Example: How Payments on Account Work

Tom is a self-employed gardener.

For the 2024/25 tax year, he reported:

• Self-employed profits: £45,000
• Income Tax: £6,486
• Class 4 National Insurance: £1,945.80

His total liability was £8,431.80.

Since his tax bill exceeded £1,000, HMRC requires him to make payments on account for 2025/26.

Each payment is:

£8,431.80 ÷ 2 = £4,215.90

Tom pays:

• £4,215.90 on 31 January 2026
• £4,215.90 on 31 July 2026
  

Why You Should Review Your July Payment

Unlike the January payment, the July payment is made after the tax year has ended. By this point, many taxpayers already know whether their income has increased or decreased.

If your profits have fallen, your expected tax bill may also be lower.

Paying the original payment on account could leave you paying more tax than necessary, reducing your available cash until HMRC processes a refund.

Reviewing your figures before the July deadline can help you avoid overpaying.

Example: When Reducing Your Payment Makes Sense

During 2025/26, Tom took time away from work to care for a family member.

His business profits reduced to £36,000.

As a result:

• Income Tax: £4,686
• Class 4 National Insurance: £1,405.80
• Total tax liability: £6,091.80

If Tom continued paying the original payments on account of £4,215.90 each, he would pay:

£8,431.80

This would mean an overpayment of:

£2,340.00

Instead, Tom can reduce each payment on account to:

£3,045.90

Since he already paid £4,215.90 in January, he only needs to pay:

£1,875.90 by 31 July 2026

This aligns his payments with his expected tax bill and avoids tying up unnecessary cash.

How to Reduce Your Payment on Account

If you expect your tax liability to be lower than the previous year, you can ask HMRC to reduce your payments on account.

You can do this by:

• Logging into your HMRC Personal Tax Account
• Opening your Self Assessment record
• Selecting Reduce payments on account

Alternatively, you can submit Form SA303 by post.

Before requesting a reduction, make sure your estimate is based on accurate financial records.

Be Careful Not to Reduce It Too Much

Although reducing your payments can improve cash flow, it’s important not to underestimate your expected tax bill.

If you reduce your payments too much and your final liability turns out to be higher, HMRC will charge interest on the shortfall from the original due date until the outstanding amount is paid.

For that reason, your estimate should always be realistic and supported by up-to-date accounts.

Practical Tips Before 31 July

Before making your July payment on account:

• Review your latest business accounts.
• Compare this year’s profits with the previous year.
• Check whether your expected tax bill has reduced.
• Apply to reduce your payment if appropriate.
• Pay any amount due by 31 July 2026 to avoid interest charges.

Taking a few minutes to review your position could help preserve valuable cash while ensuring you remain compliant with HMRC requirements.

Final Thoughts

Payments on account are designed to spread tax payments throughout the year, but they are based on previous tax liabilities rather than your current circumstances.

If your income has fallen during the 2025/26 tax year, you may be entitled to reduce your July payment on account. Reviewing your position before the deadline can prevent unnecessary overpayments while helping you manage your business cash flow more effectively.

If you’re unsure whether your payment should be reduced, professional advice can help ensure your estimate is accurate and avoid unexpected interest charges later.

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