Your 31 July Payment on Account: A Simple Guide for Oxfordshire Sole Traders

If you are self employed or file a Self Assessment tax return, there is a good chance you have a payment to make by 31 July. It is called a payment on account, and it catches plenty of people out each year because the bill lands in the middle of summer when tax is the last thing on anyone’s mind. Here is a clear guide to what it is, who pays it, how it is worked out, and what to do if the amount looks too high.

What is a payment on account?

A payment on account is an advance payment towards your next Self Assessment tax bill. Rather than paying all of your tax in one lump sum after the tax year ends, HMRC asks you to pay it in two instalments. The first falls on 31 January and the second on 31 July.

Each instalment is usually half of the tax you owed for the previous year, and for the self employed it includes your Class 4 National Insurance as well as your Income Tax. The payment due this 31 July goes towards your 2025 to 2026 tax bill and is based on what you owed for 2024 to 2025. It is meant to spread the cost, though it can feel like a surprise the first time it lands.

Do you have to make one?

Not everyone does. You will not need to make payments on account if either of the following applies. First, if your Self Assessment tax bill for last year was under £1,000. Second, if you paid more than 80 percent of the tax you owed at source, for example through PAYE or tax already deducted elsewhere.

If neither of those applies, the payments are due and HMRC will have set them out on your Self Assessment statement or online account. It is worth logging in to check the exact figure rather than relying on memory from January.

How the amount is worked out

The calculation is simpler than it sounds. HMRC takes the total tax you owed last year, assumes you will owe a similar amount this year, and splits that figure in two. If you end up earning more than expected, there will be a further sum to settle later, known as a balancing payment, due on 31 January. If you earn less, you may be due a refund.

This is why a strong first year of trading can lead to a heavy demand the following summer. You are effectively paying last year’s tax and pre-paying this year’s at the same time. Setting money aside as you go is far easier than finding it in one go, and our guide on why cash flow is the lifeblood of your business shows how to build that habit into your routine.

Can you reduce your payment on account?

Yes, and this is one of the most useful things to know. If you are confident your income has fallen and this year’s tax bill will be lower than last year’s, you can ask HMRC to reduce your payments on account. You can do this through your online account or by sending in form SA303.

A word of caution though. If you reduce the payments too far and your actual bill turns out higher, HMRC will charge interest on the shortfall. So reduce with a realistic estimate, not simply to ease this month’s cash flow. If you are unsure what a fair figure looks like, this is exactly the kind of judgement call we help with through our Self Assessment and personal tax service.

What happens if you pay late?

Interest is the main thing to watch. HMRC charges late payment interest on anything paid after the deadline, and the current rate is 7.75 percent a year. That adds up quickly on a bill of a few thousand pounds, so paying on time is almost always the cheaper option.

If you genuinely cannot pay the full amount by 31 July, do not ignore it. HMRC offers Time to Pay arrangements that let you spread the cost, and it is far better to arrange one in advance than to miss the date and let interest build. A quick conversation with us first means you go into it knowing your numbers.

Getting ahead for next time

The best way to handle payments on account is to stop them being a surprise. Keeping your bookkeeping current means you always know roughly what you owe, and filing your return early gives you months of notice before anything is due. We cover this in our post on filing your Self Assessment tax return early, and there is a handy rundown of the dates in our guide to the personal tax deadlines every business owner should know. Good records are the foundation of it all, which is why our bookkeeping services keep your figures up to date so there are no nasty shocks.

How we help across Oxfordshire

At Modus we look after sole traders, landlords and small business owners across the county, from Witney to Abingdon. We calculate your payments on account correctly, tell you in advance what is due, advise on whether a reduction makes sense, and make sure everything reaches HMRC on time. No jargon and no last minute panic, just clear numbers you can rely on.

Not sure what you owe this July?

If you would like a hand working out your payment on account, or you think it might be too high and want to check, we are happy to help.

Book a Free 30 Minute Discovery Call and we will make sure you pay the right amount at the right time.