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A payment on account is an advance instalment towards your next Self Assessment tax bill. The second instalment for the 2025/26 tax year is due by midnight on 31 July 2026, and HMRC works it out as half of what you owed for 2024/25. If your profits have since fallen, you can ask HMRC to reduce it before the deadline.
- What is a payment on account?
- Why online sellers get caught out in July
- Do you have to make a payment on account?
- How to reduce your payment on account
- What happens if you miss the 31 July deadline
- Frequently asked questions
Every summer we get the same worried message from sellers: “HMRC wants another payment and I already paid in January.” If that is you, you are almost certainly looking at a payment on account. It is not a new tax or a mistake, and with HMRC urging taxpayers to get ahead of the July deadline, it pays to understand yours now. Here is exactly what it is, why the amount looks the way it does, and the one thing that can legally shrink your bill before 31 July.
What is a payment on account?
A payment on account is HMRC’s way of collecting your Self Assessment tax in advance, spread across two instalments rather than one lump sum. Once your tax bill for a year passes a certain size, HMRC assumes you will owe a similar amount next year and asks you to pay towards it early.
There are two instalments each year. The first is due on 31 January, alongside any balancing payment for the year just gone. The second is due on 31 July. Each instalment is half of your previous year’s tax bill. So the payment landing on 31 July 2026 is your second instalment towards 2025/26, and it is calculated as half of what you owed for 2024/25.
The catch that trips people up is timing. Your first ever payment on account arrives on the same day as your first full tax bill, so that January can feel brutal: you pay the tax you owe, plus half of it again as an advance. The July instalment is the second half of that advance. It is not extra tax on top, it is the same year’s tax collected sooner.
Why online sellers get caught out in July
The July payment is always based on your last completed year, and for a growing store that is often your best year yet. Say 2024/25 was the year your Amazon or TikTok Shop sales really took off. Your tax bill was high, so your payments on account are set high too, and HMRC now expects the same again for 2025/26.
That is fine if this year is tracking the same or better. It stings when it is not. Rising FBA fees, heavier ad spend, a softer market or a deliberate step back can all leave you paying an advance sized on a bumper year you are not repeating. The money leaves the business at the height of summer, right when you may be buying stock for the Black Friday and Christmas run-in.
This is why we treat the July payment as a cash-flow decision, not just a form to file. If your trading is down on last year, you may be handing HMRC money you do not owe yet, and you can do something about it. If you want to see how the timing lands against your busiest quarter, our guide to cash flow forecasting for Black Friday pairs well with this.
Do you have to make a payment on account?
Not everyone does. HMRC only asks for payments on account if your last Self Assessment bill was £1,000 or more, and if less than 80% of your tax for that year was already collected at source, for example through PAYE. Clear either of those bars and you fall outside the system for now.
Whether you trade as a sole trader or a limited company changes who this hits. Sole traders pay it on their trading profits through Self Assessment. A limited company itself does not: it pays Corporation Tax on a different timetable. But company directors often still get a payment on account personally, because dividends above the £500 allowance are not taxed at source, so the tax on them lands through Self Assessment and can tip you over the £1,000 line.
If you are new to selling and 2024/25 was your first taxable year, this July may be your first encounter with a payment on account at all. It is one of the most common tax surprises we see online sellers hit, purely because nobody warned them the January bill included an advance.
How to reduce your payment on account
Here is the part most sellers miss. If you reasonably expect your 2025/26 tax bill to be lower than 2024/25, you can apply to reduce your payment on account before 31 July. You do it through your HMRC online account, or by submitting form SA303. You tell HMRC what you expect to owe, and both instalments are recalculated down.
This is genuinely useful when your numbers have moved. Lower sales, thinner margins, a big equipment purchase or simply a quieter year are all valid reasons. Reducing the payment keeps cash in the business now, which matters most in the months before your Q4 stock spend.
There is a trap, though. If you reduce too far and your actual bill comes in higher, HMRC charges interest on the shortfall, backdated to the original due dates. Cut it to zero to save cash today and you can face an interest bill in January. The skill is estimating honestly, and that is exactly the judgement an accountant is for.
Not sure whether to reduce it? Our FCCA-chartered team works out payment on account for UK ecommerce sellers every July, balancing the cash-flow saving against the interest risk. Book a free 30-minute call and we will tell you what to pay before the 31 July deadline.
What happens if you miss the 31 July deadline
Miss the 31 July date and interest starts running on the unpaid amount straight away. HMRC’s late payment interest rate is 7.75% a year from 9 January 2026, set at the Bank of England base rate plus 4%. It is charged daily, so even a short delay costs you, and the rate can change if the base rate moves.
There is no separate late-filing penalty for a missed payment on account, unlike the balancing payment in January, but interest alone is reason enough not to drift past the date. If you genuinely cannot pay in full, HMRC’s online Time to Pay service lets many people spread the cost, and setting one up before the deadline looks far better than going silent.
Paying is the easy part. You can settle through your HMRC online account, the free HMRC app, bank transfer, or debit card, using your Unique Taxpayer Reference. Give bank transfers a working day or two to clear so the money lands before midnight on the 31st.
Frequently asked questions
Is a payment on account an extra tax?
No. A payment on account is not an additional tax, it is your normal Self Assessment tax collected earlier and in two instalments. Everything you pay counts towards the year’s final bill. When you file your return, your instalments are deducted and you only settle the remaining balance, or claim a refund if you have overpaid.
How is my payment on account calculated?
Each payment on account is half of your previous year’s Self Assessment tax bill. So if you owed £4,000 for 2024/25, HMRC asks for £2,000 on 31 January 2026 and another £2,000 on 31 July 2026, both towards your 2025/26 bill. Any difference is squared up through a balancing payment the following January.
Do limited company directors pay payments on account?
Often, yes, but personally rather than through the company. The company pays Corporation Tax separately. As a director, if you draw dividends above the £500 allowance, the tax on them is due through your own Self Assessment. If that pushes your personal bill to £1,000 or more, you will usually be asked for payments on account.
Can I reduce my payment on account?
Yes, if you reasonably expect to owe less this year than last. Apply through your HMRC online account or with form SA303 before the deadline. Be careful not to reduce it too far, because if your final bill is higher, HMRC charges interest on the difference, backdated to the original due dates.
What if I can’t pay by 31 July?
Pay what you can and set up a Time to Pay arrangement through HMRC as early as possible. Interest still applies to the outstanding amount, but a plan agreed before or soon after the deadline avoids the situation escalating. Ignoring it is the costly option, so it is always worth making contact.
Talk to a UK ecommerce accountant
If you would like a hand working out what to pay on 31 July, or whether to reduce it, our FCCA-chartered team works with over 700 UK ecommerce sellers across Amazon, Shopify, eBay and TikTok Shop. We also keep you ready for Making Tax Digital for Income Tax as the rules roll in. Tell us about your store and we will show you exactly what we would do. Book a free consultation or request a tailored quote.
