{"id":971,"date":"2025-07-30T08:22:59","date_gmt":"2025-07-30T08:22:59","guid":{"rendered":"https:\/\/www.luzenta.com\/blog\/?p=971"},"modified":"2025-07-30T08:23:12","modified_gmt":"2025-07-30T08:23:12","slug":"how-to-pay-your-second-payment-on-account-and-avoid-interest-charges","status":"publish","type":"post","link":"https:\/\/www.luzenta.com\/blog\/how-to-pay-your-second-payment-on-account-and-avoid-interest-charges\/","title":{"rendered":"How to Pay Your Second Payment on Account and Avoid Interest Charges"},"content":{"rendered":"

If you earn income outside of the Pay As You Earn system, such as through self-employment, rental property, or dividends, you may be required to submit your tax information via Self Assessment. One element of this process that catches many individuals by surprise is the requirement to make advance contributions towards the following year\u2019s tax bill. These contributions are called payments on account.<\/span><\/p>\n

Payments on account are advance tax payments based on the amount of tax you owed in the previous tax year. They are designed to help taxpayers stay on top of their obligations and spread the cost of their tax liabilities over the year. Instead of waiting until the next January to pay everything in one go, you pay in two installments: one by 31 January and the second by 31 July.<\/span><\/p>\n

These payments cover income tax and Class 4 National Insurance for those who are self-employed. They do not typically include capital gains tax or student loan repayments, which must be paid separately once the full return is filed.<\/span><\/p>\n

Why Does HMRC Require Advance Tax Payments?<\/b><\/p>\n

The idea behind payments on account is to prevent people from falling into debt with HMRC. By asking for half the estimated tax bill in January and the other half in July, HMRC helps spread the financial burden across the year. This makes it easier for individuals with fluctuating or untaxed income to manage their finances and avoid surprise tax bills.<\/span><\/p>\n

If you submit your Self Assessment tax return and your tax bill exceeds \u00a31,000 and less than 80 percent of your income tax was collected at source, you are likely to be required to make these advance payments. The figure HMRC uses to calculate each payment is based on your prior year\u2019s bill, so if you owed \u00a38,000 last year, you\u2019ll be expected to pay \u00a34,000 in January and another \u00a34,000 in July.<\/span><\/p>\n

When Is the Second Payment Due?<\/b><\/p>\n

The second payment on account is due by midnight on 31 July. This is a critical date for individuals who fall under Self Assessment, but it’s also one that\u2019s commonly overlooked. By mid-summer, most people are no longer thinking about their taxes. The busy financial season around the January deadline has passed, and people are often focused on holidays or seasonal spending instead.<\/span><\/p>\n

However, failing to meet the 31 July deadline can result in daily interest charges. Although the payment is based on an estimate, HMRC treats the deadline seriously. Delaying payment will not only increase your costs through interest but could also lead to late payment penalties if the delay continues.<\/span><\/p>\n

How Are Payments on Account Calculated?<\/b><\/p>\n

Payments on account are calculated as 50 percent of your previous year’s income tax and Class 4 National Insurance bill. This means the payments are estimates rather than exact figures. When you eventually file your next tax return, HMRC will compare the actual bill to what you\u2019ve paid in advance.<\/span><\/p>\n

For example, if your tax bill for 2023-24 was \u00a310,000, then for the 2024-25 tax year, you will need to pay \u00a35,000 by 31 January 2025 and another \u00a35,000 by 31 July 2025. Then, when you submit your 2024-25 return in January 2026, HMRC will work out if you\u2019ve overpaid or underpaid.<\/span><\/p>\n

If you have underpaid, you\u2019ll need to pay the difference by 31 January 2026. If you\u2019ve overpaid, HMRC will typically issue a refund or credit the excess toward future tax liabilities.<\/span><\/p>\n

Who Needs to Make a Second Payment on Account?<\/b><\/p>\n

Not everyone under Self Assessment needs to make payments on account. You are usually required to do so only if:<\/span><\/p>\n