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31 July 2026: Why is HMRC Asking You for Another Payment After the Taxes in January?

Payments on Account do not mean that you are paying the same taxes twice. But they can become a serious cashflow problem when they are treated as a surprise.

For many sole traders, CIS subcontractors, and landlords who submit Self Assessment, July brings an apparently legitimate question:

“I paid my taxes in January. Why is HMRC asking me for money again?”

The short answer is that HMRC does not normally request payment of the same taxes for a second time. The amount due on 31 July 2026 is usually the second Payment on Account for the 2025/26 tax year—an advance payment calculated before the final tax liability for that year is known. HMRC has officially reminded taxpayers that this second instalment must be paid by the end of July.

The confusion does not arise because the system is impossible to understand. It arises because it combines two different realities in a single HMRC account:

1. The settlement of taxes for a completed year.

2. The advance funding of the following year.

From the taxpayer’s perspective, the result may look like a double bill. From HMRC’s perspective, it is a mechanism through which taxes are collected closer to the period in which the income is earned.

📌 What the Payment on 31 July Actually Represents

Payments on Account are advance payments towards your future Self Assessment liability. They usually include Income Tax and Class 4 National Insurance due through Self Assessment and are divided into two equal instalments:

• First Instalment: Due 31 January

• Second Instalment: Due 31 July

Each instalment is generally equal to half of the relevant liability from the previous tax year.

Therefore, the payment on 31 July 2026 is not a new tax assessment. HMRC has not already calculated your final profit for 2025/26, nor determined that the amount paid is exactly what you will owe. It has simply used your previous tax result as the basis for an estimate.

⚠️ The Central Weakness: Until you prove otherwise, the system assumes that your current year’s tax liability will be approximately equal to that of the previous year.

• For a stable business, this estimate may be reasonable.

• For a builder who worked fewer months, a landlord who sold a property, or a sole trader who lost a major contract, it may be profoundly inappropriate.

📈 Why the January Bill May Appear "Almost Double"

Let us assume that your relevant liability for 2024/25 was £6,000, and you had not made Payments on Account for that year.

1. What Happened on 31 January 2026:

On 31 January 2026, your account included:

• £6,000 representing the liability for 2024/25.

• £3,000 representing the first Payment on Account for 2025/26 (50% of £6,000).

• Total Paid in January: £9,000

2. What Happens on 31 July 2026:

On 31 July 2026, the second instalment of £3,000 becomes due. In total, you will have paid £6,000 in advance for the 2025/26 tax year before your tax return for that year is finalised.

3. How the Reconciliation Works Later:

• If your final tax liability for 2025/26 is £5,200: Your two advance payments of £6,000 exceeded your actual bill by £800. The difference will be offset within your account or refunded.

• If your final tax liability for 2025/26 is £7,400: You will owe a balancing payment of £1,400 by 31 January 2027. At the same time, your first advance payment for 2026/27 will be £3,700 (half of £7,400). Your total due in January 2027 becomes £5,100.

This is why the bill appears to “inflate” again precisely when you believed you had closed the tax year.

🚫 Not Everyone Has to Make Payments on Account

Payments on Account are not compulsory in every situation. In general, they are not required if:

• Your relevant tax liability from the previous year was less than £1,000; OR

• More than 80% of your total tax due had already been collected outside Self Assessment (e.g., through PAYE or a tax code).

This exception is important for people who are both employed and self-employed. However, the simple fact that you also work through PAYE does not automatically exempt you. The test applies strictly to the proportion of taxes collected at source, not merely the existence of an employment income source.

For this reason, the analysis must be based on the tax calculation and the Self Assessment statement, not on an assumption.

📉 Can You Legally Reduce the July Payment?

Yes—but the reduction must be supported by a defensible tax estimate.

HMRC allows Payments on Account to be reduced when you expect your final tax liability to be lower than the original estimate. Legitimate reasons include:

• A drop in profits or trading income.

• An increase in tax reliefs.

• A higher amount of tax withheld at source (e.g., CIS deductions).

You can submit a reduction request online or through Form SA303.

🛑 Important: Reducing a payment is not a "negotiation" or concession from HMRC; it is a recalibration of an estimate.

• Example: If your two Payments on Account are £3,000 each, but your actual estimated liability for 2025/26 is only £4,000, payments can be reduced to £2,000 each. If you already paid £3,000 in January, your July payment falls to £1,000, so that the total paid in advance reaches £4,000.

“I think I will earn less this year” is not a tax analysis. It is a hope. Reductions must begin with hard figures: income to date, confirmed contracts, reasonable expenses, CIS deductions, property income, PAYE and the other relevant elements.

⚠️ The Danger of Reducing Too Much

Reducing a Payment on Account produces an immediate improvement in cashflow, but it does not automatically produce a reduction in your final taxes.

If the actual tax liability is higher than the estimated amount, HMRC will recalculate the difference and charge interest on the part that should have been paid by the original deadlines. HMRC explicitly warns that an excessive reduction may generate interest on the difference.

Furthermore, a request for a reduction does not change the legal date on which the payment should have been made. In HMRC’s records, the difference may be treated as having been due from the original deadline (31 July), not only from the moment when the final tax return proves that the estimate was incorrect.

At the date this article was checked, HMRC’s late payment interest rate is 7.75%, applicable from 9 January 2026. The rate may be changed because it is linked by formula to the Bank of England base rate.

Therefore, an aggressive reduction made solely to keep the money in the account is not tax optimisation. It is temporary financing whose cost may become visible later.

🚨 What Happens If You Do Not Pay by 31 July?

For the second Payment on Account, interest begins to accrue after the legal payment deadline and continues until the date on which HMRC considers the amount paid. The Self Assessment system automatically calculates interest on liabilities that are not paid on time.

However, there is an important technical nuance:

Late payment penalties of 5% are not normally applied directly to a Payment on Account 30 days after the July deadline. HMRC states in its manual that Payments on Account do not directly fall within the basis of these penalties. However, if the amount remains unpaid by the balancing payment deadline, it may become part of the balance to which the penalty regime applies.

This does not make the delay free of consequences. Interest continues to accumulate, the balance remains visible in the HMRC account, and the problem may be combined with the balancing payment and the first Payment on Account for the following year.

A liability that appears manageable in July may become much more difficult in January.

💡 If You Do Not Have the Money, Reduction and Postponement Are Not the Same Thing

A reduction of the Payment on Account is justified when the estimated taxes are lower. A payment arrangement is necessary when the taxes are probably correct, but the taxpayer does not have the required liquidity.

Confusing the two situations is dangerous. If the profit has not fallen, the tax estimate should not be artificially reduced merely to hide a cashflow problem.

Your Options If Cashflow Is Tight:

• Budget Payment Plan: Taxpayers who are up to date with their Self Assessment obligations can use a Budget Payment Plan to make weekly or monthly payments towards a future liability. If the amount is not fully covered by the deadline, the difference remains payable.

• Time to Pay (TTP) Arrangement: When the taxpayer cannot pay the liability in full, they may request a Time to Pay arrangement. HMRC will examine the ability to pay, income, expenses and the period required, and the taxpayer must be able to maintain both the agreed instalments and the new liabilities that arise in the meantime. Interest generally continues to be charged on the remaining balance.

The problem should not be ignored until after the deadline. The earlier the discussion begins, the more room there is for a controlled solution.

🧠 DCTaxAgent Insight: The Real Problem Is Not the Taxes, But the Lack of Forecasting

Payments on Account are often presented as an HMRC administrative problem. In reality, they are a test of the business’s financial discipline.

A sole trader who finds out on 28 July that they must find £4,000 does not only have a tax problem. They have a cashflow process that has failed to convert future liabilities into visible monthly costs.

• For CIS Subcontractors: The situation may be even more confusing. The taxes withheld by the contractor reduce the final tax liability, but this does not automatically mean that any Payment on Account displayed in the account is incorrect. It must be checked whether all CIS deductions have been declared, whether the income and expenses are complete and whether the estimate for the current year reflects reality.

• For Landlords: Differences may arise after periods without a tenant, refinancing, significant works or the sale of a property. But here too, the reduction should not be based only on the amount of cash remaining in the account. The anticipated tax liability must be analysed.

📋 A professional process should answer three questions before 31 July:

1. Has the amount in the HMRC account been calculated correctly?

2. Is the estimated liability for 2025/26 genuinely lower?

3. Is there sufficient liquidity for the remaining payment?

Only after these answers can it be decided whether the payment should be made in full, reduced through a justified request or managed through a payment arrangement.

🏁 Conclusion

The payment on 31 July is not normally a repeated taxation of the income declared in January. It is the second advance instalment for the 2025/26 tax year, calculated on the basis of a previous liability and adjusted later, once the actual result becomes known.

This does not mean that the amount displayed should be accepted without verification.

If income has fallen, if the activity has ceased, if tax reliefs have increased or if more tax has been withheld at source, there may be a legitimate reason for a reduction. But if the liability has remained comparable, the reduction does not eliminate the taxes: it only delays the moment when the problem becomes visible.

🛡️ How DCTaxAgent Can Help

DCTaxAgent can help you check HMRC’s calculation, estimate the liability for 2025/26 and determine whether the Payment on Account should be paid in full, justifiably reduced or integrated into a realistic cashflow plan.

• Date checked: 26 July 2026

• Target audience: sole traders, CIS subcontractors, landlords and Self Assessment taxpayers in the United Kingdom

• Main sources: HMRC and GOV.UK

Note: This material is for informational purposes and does not replace an individual tax analysis.