Second payment on account: what contractors need to pay HMRC by 31 July

What payments on account are

Payments on account are advance instalments of your Self Assessment tax bill. HMRC assumes your tax liability for the current tax year will be broadly similar to last year’s, and asks you to pay in two equal instalments rather than one large lump sum in January.

Each instalment is 50% of your previous year’s Self Assessment tax bill. The first was due by 31 January 2026. The second — covering the other 50% — is due by midnight on 31 July 2026. If your actual 2025–26 tax bill is higher than expected, a balancing payment will be due the following January.

For the full explainer — including the first-year “double hit” and how to reduce your payments with form SA303 — see our payments on account guide.

Who has to pay

You are required to make payments on account if both of the following apply:

• Your last Self Assessment tax bill was £1,000 or more
• Less than 80% of that tax was collected at source through PAYE or your tax code

For contractors running a limited company, the most common trigger is untaxed dividend income taken alongside a salary. If your total tax bill on dividends — after accounting for the dividend allowance and any basic or higher rate liability — exceeded £1,000 last year, payments on account almost certainly apply to you. Rental income, freelance income, or other untaxed sources can also push you into scope.

If you are new to Self Assessment and this is your first or second year, you may not have had a payment on account bill yet. That is normal — but once you file your first return and the bill exceeds the threshold, HMRC will set up payments on account from the following year.

What to do if your income has fallen

Payments on account are based on last year’s bill, not an estimate of this year’s actual liability. If your circumstances have changed — a drop in your day rate, time between contracts, reduced dividend drawings, or a change in IR35 status — you may be overpaying.

You can apply to reduce your payments on account via your GOV.UK personal tax account before the deadline. HMRC will adjust the amount due for both instalments if you apply before 31 July. If you reduce and your actual bill turns out to be higher than your reduced estimate, you will owe interest on the shortfall — so it is worth being realistic rather than aggressive with any reduction.

AutoBooks can review your year-to-date figures and help you arrive at a sensible estimate if you are uncertain what your current liability looks like.

How to pay

Payment options include:

• Online banking or bank transfer — using HMRC’s account details and your Unique Taxpayer Reference (UTR) as the reference
• HMRC app — over 110,000 payments were made via the HMRC app in the period since April 2026 alone; the app can also show your current balance and payment history
• Debit card online — via your personal tax account on GOV.UK

Do not pay early and forget to check. HMRC systems can take a few days to match a payment to the right account, and a mismatched reference can cause the payment to sit unallocated. Use your UTR as the payment reference to ensure it is applied correctly.

What happens if you miss the deadline

Interest is charged automatically from 1 August on any unpaid balance. HMRC’s late payment interest rate is currently above 7% per annum. Unlike a missed Self Assessment return, there is no fixed late-payment penalty for a missed payment on account — but the interest starts immediately and compounds daily, so a missed payment quickly becomes more expensive than the original amount.

If you genuinely cannot pay in full, contact HMRC before the deadline rather than after. Time to Pay arrangements are available and are more accessible when you engage proactively.