You paid your January tax bill and thought you were done. Then a second HMRC payment arrives in July — nobody warned you about it, and it's due in days. Here's how Payment on Account works and what you can do before 31 July.

Payment on Account: The HMRC Bill That Blindsides Higher-Earning CIS Subcontractors

Payment on Account · July 2026

Payment on Account: The HMRC Bill That Blindsides Higher-Earning Subcontractors

You filed your Self Assessment, paid what you owed, and thought you were done. Then HMRC sends another bill — due 31 July — that nobody warned you about. Here's what Payment on Account is, how it's calculated, and what you can do if the amount is wrong.

📅 July 2026 · ⏱ 6 min read · 🏗 CIS Subcontractors

Most CIS subcontractors expect one tax bill per year. Payment on Account means you can end up with three — the balancing payment for the year just ended, a first instalment toward next year's tax bill due in January, and a second instalment due the following July. If nobody explained this to you when your earnings crossed the threshold, the July bill is the one that lands without warning and causes the most cash flow problems.

31 Jul Deadline for the second Payment on Account instalment — due every year for qualifying taxpayers

50% Each Payment on Account instalment — half of last year's tax bill, paid in advance

£1,000 The threshold below which Payment on Account does not apply — bills under this are paid in full in January

What Payment on Account Actually Is

Payment on Account is HMRC's system for collecting tax in advance. The idea is straightforward: rather than waiting until January to collect all of next year's tax, HMRC splits your estimated liability into two instalments — one in January alongside your balancing payment, and one the following July.

Each instalment is calculated as 50% of your previous year's tax bill. HMRC's logic is that if you earned a certain amount last year, you're probably earning something similar this year — so they collect advance payments accordingly. If they've collected too much, you get a refund when you file. If too little, you pay the difference as a balancing payment.

The system kicks in when your Self Assessment tax bill exceeds £1,000 and less than 80% of your tax has been collected at source through PAYE or CIS. Most CIS subcontractors who are paying standard 20% deductions will have CIS covering a significant portion — but if your income was high enough or your deductions were low relative to your liability, Payment on Account may still apply.

The January bill is the one people plan for. The July bill is the one that empties accounts. Both are real deadlines — and both carry the same interest charges if you miss them.

CIS Tax Insights · 2026

The Payment Timeline: Where July Fits

Here's how the full cycle looks for a subcontractor whose tax year runs April to April and who has a Payment on Account liability.

31 Jan Balancing payment for previous year + 1st Payment on Account instalment for current year

31 Jul ← Now 2nd Payment on Account instalment — 50% of previous year's tax bill

31 Jan Balancing payment + 1st instalment for following year

31 Jul 2nd instalment again — cycle continues

The July payment is the one that catches people out because it sits six months after the January deadline, arrives mid-summer when cash flow is sometimes tighter, and there's no return to file — just a payment to make. Many subcontractors who dealt with January fine simply don't realise July is coming.

What It Costs in Real Numbers

Here's a realistic example for a subcontractor who had a strong year and ended up with a meaningful Self Assessment tax bill.

📐 Payment on Account Calculation Previous year's Self Assessment tax bill: £4,200

Payment	Amount	Due
Balancing payment for previous year	£4,200	31 Jan
1st Payment on Account (50% of £4,200)	£2,100	31 Jan
2nd Payment on Account (50% of £4,200)	£2,100	31 Jul
Total paid across January and July	£8,400

That's a £4,200 tax bill turning into £8,400 across two deadlines — with £2,100 due in July that many subcontractors simply didn't see coming. The extra £4,200 isn't extra tax; it's advance payment toward the following year. But it's still money that needs to leave your account on 31 July, and if you haven't set it aside, it creates a serious cash flow problem.

⚠ Missing the July Deadline

If you miss the 31 July deadline, interest accrues from that date on the unpaid amount — currently at HMRC's late payment rate. There's no automatic penalty for being late with Payment on Account (unlike missing a filing deadline), but the interest adds up quickly on larger amounts. If you can't pay on time, contact HMRC before the deadline to discuss a Time to Pay arrangement rather than simply missing it.

If Your Income Has Dropped

The One Thing Most Subcontractors Don't Know: You Can Reduce It

Here's the part that genuinely changes the situation for many people: if your income this year is lower than last year — a quiet patch on site, fewer contracts, a period of illness, or simply a different mix of work — you can ask HMRC to reduce your Payment on Account to reflect what you actually expect to earn.

This is called "claiming to reduce payments on account" and it's done through your Government Gateway account or by completing form SA303. You're making a reasonable estimate of your current year's liability, and HMRC adjusts the July payment (and the following January instalment) accordingly.

✓ How to Reduce Your Payment on Account

Log into your Government Gateway account, go to your Self Assessment, and select "Reduce payments on account." You'll enter your estimated tax liability for the current year. If you genuinely expect to earn less this year than last, this is legitimate and straightforward. If you underestimate and end up owing more, you'll pay the difference as a balancing payment in January plus interest on the shortfall — so be realistic rather than optimistic.

⚠ Don't Reduce It Just to Delay Paying

If your income is roughly similar to last year and you reduce your Payment on Account simply to improve short-term cash flow, you'll pay interest on the difference come January when the balancing payment is calculated. Only reduce if you have a genuine reason to believe this year's bill will be lower — a significant drop in earnings, a large pension contribution, or additional allowable expenses that weren't there last year.

Action Protocol

What to Do Before 31 July

01

Check Whether You Actually Have a Payment on Account Due Log into your Government Gateway account and check your Self Assessment position. Your account will show any Payment on Account due on 31 July, the amount, and a payment reference. If your previous year's tax bill was under £1,000 or more than 80% was collected through CIS deductions, you may not have one.
02

Compare This Year's Earnings to Last Year's If your income this year is tracking significantly below last year — fewer contracts, quieter months, a change in the type of work you're doing — it's worth calculating a rough estimate of your current year's tax liability. If it's meaningfully lower than last year's bill, a reduction request is likely worth making.
03

Request a Reduction If Your Income Has Dropped If you have a genuine reason to believe this year's tax bill will be lower, log into Government Gateway and apply to reduce your payments on account before 31 July. This can significantly reduce — or even eliminate — the July payment. Do this before the deadline, not after.
04

Pay on Time or Set Up a Time to Pay Arrangement If you can't pay the full amount by 31 July, contact HMRC before the deadline to arrange a payment plan (Time to Pay). HMRC is generally willing to agree staged payments for people who proactively get in touch. The alternative — simply not paying — results in interest from 1 August with no arrangement to manage it.
05

Start Setting Aside for Next January Now Once you've dealt with July, the next milestone is 31 January — balancing payment for 2025/26 plus the first Payment on Account instalment for 2026/27. If you're earning steadily, set aside a proportion of every CIS payment into a separate account specifically for tax. A simple rule of thumb: after your CIS deduction, put 10–15% of what you receive into a tax savings pot each month.

Common Questions

Frequently Asked Questions

Does my CIS deduction count toward Payment on Account?

Not directly — CIS deductions are offset against your final Self Assessment tax liability when you file your return. The Payment on Account calculation is based on the net tax you owed after all deductions were credited. So if your CIS deductions largely covered your liability last year and you only had a small balancing payment, your Payment on Account instalments will also be small — or may not apply at all if the bill was under £1,000.

I didn't have Payment on Account last year. Why do I have it now?

Payment on Account kicks in when your Self Assessment bill exceeds £1,000 and less than 80% of your tax was collected at source. If you had a particularly good year, took on more contracts, or reduced your CIS deductible expenses in your return, your final bill may have crossed this threshold for the first time. Once you're in the system, it continues every year unless your bill drops back below £1,000.

What happens if I overpay through Payment on Account?

If your actual tax liability for the year turns out to be less than the payments you've made, HMRC will show a credit on your account when you file your return. You can either leave this as a credit toward future payments or request a refund. HMRC generally processes refund requests within a few weeks of the return being submitted.

Can I pay my Payment on Account early?

Yes — HMRC accepts early payment and there's no disadvantage to paying before 31 July. If you've had a good month and have the cash available, paying early removes the deadline pressure and means there's nothing to forget. You can pay through your Government Gateway account, by bank transfer using your Unique Payment Reference, or through the HMRC app.

Quick Answers

The July Bill Is Real — But It's Manageable

Payment on Account isn't a penalty or a mistake. It's HMRC's way of collecting tax more evenly through the year rather than in one large January lump. Once you understand how it works, it stops being a surprise and becomes something you can plan around.

Check your Government Gateway account today. If you have a payment due on 31 July, you have a few days to decide whether to pay in full, reduce it if your income has dropped, or arrange a payment plan if you need more time. None of these options disappear after 31 July — but the interest clock starts ticking the moment the deadline passes.

QuoteDone Tools

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This article is for informational purposes only and does not constitute formal accounting, legal, or tax advice. Payment on Account thresholds, deadlines, and interest rates are subject to change. The figures and examples in this article are illustrative. Always consult a qualified accountant before making decisions about your Self Assessment payments. Aligned to 2026/27 HMRC guidance.