That tax bill on 31 July? It's not a second bill.

You are halfway through a job, or sat in the van chasing a main contractor for last month's money, and a tax bill lands. It is the end of July, you are sure you paid HMRC back in January, and now they want more. Before you panic: this is normal. It is your second payment on account, it is due by midnight on 31 July, and it is not a second bill for last year. You are paying ahead on this year.

The short version

• The bill that lands on 31 July is your second payment on account: an advance towards your current year's tax, not a second bill for last year.
• Each payment on account is half of last year's tax bill. The first half was due on 31 January, the second is due by midnight on 31 July.
• If you are a CIS subcontractor, you may have no payment on account at all, because tax already taken at source can cover it. Check before you assume.
• You can ask HMRC to reduce it if your income has genuinely dropped, but be honest about it: get it wrong and they charge interest on the shortfall.

Trades get caught by this one more than almost anyone. Here is the detail, and the one decision worth making before the end of the month.

What the 31 July payment actually is

A payment on account is an advance payment towards your current tax bill. HMRC takes it in two halves. The first half is due on 31 January, with your tax return. The second half is due on 31 July. Each payment is half of the tax you owed last year.

Here is how it lands if last year's tax bill was, say, £4,000:

• 31 January: £4,000 to clear last year, plus £2,000 as your first payment on account. £6,000 gone in one go.
• 31 July: £2,000 as your second payment on account.

January is the one that hurts and the one you remember. July is the one that ambushes you, because by summer it feels like the tax was already sorted. It wasn't. January only covered the first half of the advance. July is the back half.

Why it catches trades out

Three reasons, and they are all about how money moves in this trade.

January took the big hit, so July feels like being charged twice for the same thing. It isn't, but it feels it.

Your income is lumpy. You might be flat out in July with three jobs booked, or sat waiting on a retention the main contractor is holding back. The payment is the same size either way, because it is worked out from last year, not the month you are actually in.

And nobody gives you a proper heads-up. There is no boss, no payroll, no PAYE doing it for you. If you have not put the money aside, it is not there. Treating tax like a fixed monthly cost is the fix, and it is the same discipline as keeping on top of cashflow.

If you are CIS, this might not apply to you

If you are a CIS subcontractor, there is a fair chance you have small payments on account or none at all. The 20% your contractor knocks off every payment is tax paid in advance. If those deductions already cover more than 80% of your tax bill, HMRC does not ask for payments on account on top. Plenty of subbies end up owed a refund instead.

The catch is that it depends on your numbers. If you price your own private work on the side, or your deductions did not cover the full bill, payments on account can still kick in. Check what HMRC is actually asking for rather than assuming. Our guide on filing Self Assessment with CIS deductions walks through how those deductions get credited back to you.

Do you have to pay it at all?

You only make payments on account if both of these are true. Your last tax bill was £1,000 or more, and you paid less than 80% of your tax at source.

So if last year's Self Assessment bill came in under £1,000, you skip it. And if most of your tax already came off at source, through CIS deductions or a PAYE job you run alongside the tools, you may be under the 80% line too. If you are not sure whether you count as CIS, PAYE, or properly self-employed, this guide breaks down the difference.

The real decision: do you reduce it?

This is where you actually have a say. Your July payment is based on last year. If this year is genuinely worse, you are being asked to pay tax on money you have not made. You can tell HMRC to lower your payments on account, either through your online HMRC account or by sending form SA303. You give them what you expect to earn and they recalculate.

When it is worth reducing

Reduce it only if your income has actually dropped. Real reasons include going quiet with the work not coming in, moving to a limited company so your sole trader income has fallen, winding down towards retirement, or a one-off run of big jobs last year that will not repeat. In those cases the payment based on last year overstates what you will really owe, and reducing it keeps your cash where it is useful.

When to leave it alone, and the interest trap

If the work is still booked in, leave it. If you knock the payment down and your real bill comes in higher, HMRC charges interest on the shortfall, currently 7.75% a year. Cutting it just to get through a slow month means paying it back later with interest stacked on top. Wanting to hold onto the cash is not a reason. A genuine drop in income is. If you want to bring the bill down properly, do it the legitimate way and claim everything you are owed. Here are the expenses trades leave on the table.

What if the money isn't there?

If 31 July comes and you cannot cover it, do not go quiet on HMRC. That is the one move that turns a payment you can manage into penalties and mounting interest. HMRC has a Time to Pay arrangement that can spread the cost, and it is far easier to set up before the deadline than after.

We have written the full step-by-step on what to do when you cannot pay a tax bill, including how to set up a payment plan and exactly what HMRC will ask you for: What to do if you can't pay your tax bill. Miss it with no plan and the penalties and interest start adding up, so sort it early.

What to do before the end of July

1. Check the actual figure. Log in to your HMRC account and look up your second payment on account. Know it now, not on the 31st.
2. CIS subbies, check whether you even have one. Your deductions may have covered it.
3. Decide on reducing it, honestly. Only if the work has genuinely dried up.
4. Move the money before you spend it. If the jobs have been steady, the cash should be there.
5. If you can't pay, act early. Sort a payment plan before the deadline, not after.

Common questions

Can I just ignore the second payment on account?

No. It does not go away, and ignoring it adds interest and, in time, penalties. If you cannot pay, set up a Time to Pay arrangement with HMRC before the deadline rather than going silent. Our guide on what to do when you cannot pay a tax bill walks through it.

What happens if I overpay?

If your payments on account come to more than your actual bill for the year, HMRC repays the difference after you file your return. Many CIS subcontractors are in this position, because of the tax already deducted at source.

I only went self-employed this year. Do I have a payment on account?

Usually not in your first year, because payments on account are based on a previous Self Assessment bill you do not have yet. The catch comes the following January, when you can be asked for last year's tax plus the first payment on account in one go. Plan for it.

Does the second payment cover my National Insurance too?

Yes. Payments on account cover your Income Tax and Class 4 National Insurance. Capital Gains Tax and student loan repayments are handled separately in your balancing payment, not in the payments on account.

The bottom line

The July payment is not a punishment and it is not extra. It is tax you were always going to owe, brought forward. Treat it as expected, put it aside like you would materials for the next job, and it stops being the bill that wrecks your summer. If the money is not there, deal with it early: here is how to handle a tax bill you cannot pay.