Struggling to Fund Your July Tax Payment? Your HMRC Options Explained

The July tax payment is the second Self Assessment payment on account and is due by midnight on 31 July. For the current payment cycle, the 31 July tax payment due on 31 July 2026 is an advance payment towards the 2025/26 Self Assessment liability.

This guidance is for sole traders, landlords, business partners and other Self Assessment taxpayers who cannot pay the July instalment in full or are concerned that HMRC has requested more than they will ultimately owe. Missing the deadline can result in late payment interest and may lead to debt collection action if the amount remains unpaid.

This guide explains how the July instalment works, when it may be reduced, how an HMRC Time to Pay arrangement may help, and what action to take when you cannot pay a tax bill by the deadline.

Payments on account are just one part of managing your overall Self Assessment position if you’re looking for the bigger picture, our ultimate guide to personal tax in the UK brings together income tax, reliefs and reporting rules in one place.

What Is the 31 July Tax Payment?

The payment due on 31 July is normally the second of two payments on account towards your current Self Assessment liability.

The first payment is due on 31 January during the tax year. The second is due on 31 July after the tax year has ended. Each instalment is normally equal to 50% of the previous tax year’s relevant Income Tax and Class 4 National Insurance liability.

The July payment is not an additional tax or a penalty. It is credited against your final Self Assessment bill when the tax return for the relevant year is completed.

Which Tax Year Does the 31 July 2026 Payment Cover?

The payment due on 31 July 2026 normally relates to the 2025/26 tax year, which ended on 5 April 2026.

It is generally calculated using your relevant Self Assessment liability for 2024/25. This means the amount requested may not reflect a fall in income or profits during 2025/26 unless you submit a claim to reduce it or file your 2025/26 return before the July deadline.

Current Self Assessment Payment Dates

Why the July Tax Payment Can Cause Cash-Flow Problems

The July deadline can be difficult because no tax return is normally due at the same time. Taxpayers often concentrate on the main 31 January deadline and overlook the second payment on account until HMRC sends a reminder or the amount appears in their online account.

Cash-flow difficulties may also arise because the payment is based on the previous year’s tax liability. If your trading profits, rental income or other untaxed income have since fallen, the instalment may be higher than the amount ultimately needed.

Other common causes include seasonal income, unexpected business expenditure, delayed customer payments, personal financial pressure or failing to reserve tax throughout the year. Some taxpayers find they’ve stopped needing to make these payments altogether as their income has shifted it’s worth confirming whether that applies to you before assuming this year’s instalment is unavoidable.

What Should You Do If You Cannot Pay the July Tax Bill?

When you cannot pay a tax bill, the correct option depends on whether the amount requested is accurate.

If your final tax liability for 2025/26 is genuinely expected to be lower, you may be able to reduce the payment on account. If the amount is correct but you cannot afford to pay it in full, you may need to consider a Time to Pay arrangement.

These are different solutions. A reduction changes the amount HMRC expects because the underlying liability is lower. Time to Pay spreads a valid tax debt over an agreed period.

Option One: Check Whether the July Payment Can Be Reduced

You can ask HMRC to reduce the July payment where you reasonably expect your relevant 2025/26 Self Assessment liability to be lower than the liability used to calculate the instalments.

This may be appropriate where your self-employed profits have fallen, rental profits have reduced, you stopped trading, a source of untaxed income ended, your allowable expenses increased or more tax was collected through PAYE.

A reduction must be based on a reasonable tax estimate. It should not be used simply because the payment is unaffordable.

Example of a Valid Reduction

Suppose your relevant 2024/25 liability was £8,000. HMRC would normally request two 2025/26 payments on account of £4,000 each.

Your completed records show that your relevant liability for 2025/26 is likely to be only £5,000. Each payment on account could therefore be reduced to £2,500.

If you already paid £4,000 in January 2026, the reduction may create a £1,500 credit. That credit could be set against the July payment, leaving £1,000 still to pay, subject to the position shown on your HMRC account.

How to Apply for a Reduction

You can normally make a claim to reduce your payments on account through your HMRC online account. Alternatively, you can complete form SA303 and send it to HMRC. An authorised accountant or tax agent can also submit the claim for you.

The calculation should consider all relevant taxable income, allowable expenses, reliefs, Class 4 National Insurance and tax already deducted at source.

If you reduce the payment too far, HMRC can charge interest on the shortfall from the original January and July due dates. Retain the figures and assumptions supporting your claim.

Option Two: Apply for HMRC Time to Pay

An HMRC Time to Pay arrangement allows an agreed tax liability to be paid by instalments instead of in one payment. It may be appropriate where the July amount is correct but you do not have enough available funds to pay it in full.

HMRC will consider whether the proposed arrangement is affordable and whether the debt can be cleared within a reasonable period. It may ask for details of your income, household or business expenditure, savings, assets and other tax liabilities.

Time to Pay does not reduce the amount of tax owed. Late payment interest will normally continue to accrue on the outstanding balance until it is paid.

Can You Set Up Time to Pay Online?

Some Self Assessment taxpayers can use HMRC’s online service without speaking directly to an adviser. Online eligibility is normally assessed automatically when you use the service.

The self-serve facility is generally intended for taxpayers who:

• have filed the relevant Self Assessment return
• owe no more than £30,000
• have no outstanding tax returns
• have no other unpaid HMRC debts
• have no existing HMRC payment plans
• apply within 60 days of the payment deadline and
• can repay the debt within the period accepted by the online service.

These conditions are not a guarantee that the online application will be accepted. HMRC’s service will assess your current account and confirm whether you can proceed.

What If You Do Not Qualify for the Online Service?

Not qualifying online does not necessarily mean that HMRC will refuse a payment arrangement.

You may need to contact HMRC directly where you owe more than £30,000, need longer to pay, have another tax debt or payment plan, or your circumstances require a more detailed affordability review.

HMRC may ask how much you can pay immediately, how much you can afford each month, what income and expenditure you have, and whether savings or assets could be used to reduce the debt.

A realistic proposal is more likely to be accepted than an amount that does not reflect your actual financial position.

Can Time to Pay Cover a July Payment on Account?

A July payment on account is a valid Self Assessment liability, and HMRC may allow it to be included in a payment arrangement where the eligibility and affordability conditions are met.

However, practical access to the online service can depend on whether the liability is visible and overdue on your Self Assessment account. You should use HMRC’s online eligibility tool or contact HMRC directly rather than assuming that an arrangement has been created.

Simply paying a smaller amount each month without HMRC’s agreement does not create a formal Time to Pay arrangement.

Should You Contact HMRC Before or After 31 July?

Act as early as possible once you know the payment cannot be made in full. You do not need to wait for HMRC to send a demand or begin debt collection contact.

Before contacting HMRC, establish:

• the amount you can pay immediately
• the monthly amount you can realistically afford
• when you expect the debt to be cleared
• whether another tax liability will become due during the arrangement and
• whether the July payment should first be reduced.

Where the online service is not yet available for the liability, you can still prepare your figures and contact HMRC promptly for guidance.

Will Interest Apply Under a Payment Plan?

Yes. Entering into Time to Pay does not normally stop late payment interest.

Interest generally runs from the original payment deadline until the outstanding tax is paid. This means interest on an unpaid 31 July tax payment will normally begin accruing from 1 August.

HMRC’s late payment interest rate is linked to the Bank of England base rate and can change. The published rate has been 7.75% since 9 January 2026, but taxpayers should check the current rate when calculating the likely cost of an arrangement.

Interest Example

Suppose £6,000 remains unpaid after 31 July and is repaid gradually over six months. HMRC will calculate interest on the outstanding balance as it reduces, rather than charging interest once on the original amount.

The total cost will depend on the rate applying during the period and the timing of each payment. Paying part of the bill before the deadline can therefore reduce the balance on which interest is charged.

Will a Late July Payment Cause a Penalty?

Late payment interest is charged on an overdue payment on account from its original due date.

Under the existing Self Assessment rules, the standalone July payment on account is not normally subject to the standard 5% late payment penalty while it remains only a payment on account. However, any unpaid amount becomes part of the final balancing liability when that liability falls due.

If it remains unpaid after the balancing payment deadline, the amount may then contribute to late payment penalties. These can be charged at 30 days, six months and 12 months after the relevant final payment deadline.

This distinction does not make it safe to ignore the July payment. Interest continues to build, the debt remains enforceable and the unpaid amount can increase the following January liability.

What Happens If You Ignore the July Payment?

HMRC will normally add interest to the outstanding balance and may contact you by letter, telephone, text message or through your online tax account.

If the debt remains unpaid and you do not engage with HMRC, it may take recovery action. Depending on the circumstances, this can include using a debt collection agency, collecting tax through a PAYE code, taking money directly from a bank account, recovering funds through the courts or taking control of goods.

Bankruptcy proceedings may be considered in serious cases involving persistent or substantial unpaid tax.

HMRC will generally seek to agree an affordable arrangement where it believes the debt can be paid. Ignoring contact makes it harder to demonstrate cooperation and may limit the available options.

Should You Pay Part of the July Tax Bill?

Yes. Where you cannot pay the full amount, paying what you can by 31 July will reduce the balance on which interest accrues.

A part-payment does not automatically create an instalment arrangement, so you should still contact HMRC or use its online service for the remaining debt.

Make sure you use the correct Self Assessment payment reference. An incorrectly allocated payment may leave the July instalment showing as unpaid.

Can You Use a Credit Card to Pay HMRC?

HMRC does not accept personal credit cards for Self Assessment payments. It accepts personal and corporate debit cards and may accept corporate credit cards, although a fee can apply to payments made using a corporate card.

Using commercial borrowing to pay tax requires careful consideration. Interest and charges from the lender may be higher than the cost of an HMRC arrangement, and borrowing does not address an underlying cash-flow problem.

Compare the total cost, repayment period and effect on your future finances before using external credit.

Can You Spread Future Tax Before It Becomes Due?

If your Self Assessment account is up to date, you may be able to use HMRC’s Budget Payment Plan to make voluntary weekly or monthly Direct Debit payments towards your next bill.

This is different from Time to Pay. A Budget Payment Plan helps you save towards a future liability before the deadline, whereas Time to Pay manages tax that is already due or cannot be paid on time.

Making voluntary payments does not change the statutory deadlines. Any remaining balance must still be paid by the relevant January or July date.

Would Filing Your Tax Return Early Help?

The 2025/26 tax year ended on 5 April 2026, so taxpayers with the necessary records can submit their return before the 31 July 2026 payment deadline.

Early filing may confirm whether the July payment is accurate. If your actual 2025/26 liability is lower than expected, submitting the return can recalculate the payments on account and reduce the amount due.

It can also show whether you will face a balancing payment on 31 January 2027 and how much the first 2026/27 payment on account is likely to be.

Filing early does not normally bring the payment deadline forward. It provides earlier certainty and more time to plan.

How to Decide Between Reducing the Payment and Time to Pay

Begin with an up-to-date estimate of your 2025/26 tax liability.

If the estimate shows that HMRC’s payment is too high, a reduction claim may be appropriate. If the estimate confirms that the full amount is due but you do not have the funds, Time to Pay may be the correct route.

Some taxpayers may need both options. For example, the original £8,000 July payment might be reduced to £5,000 based on lower profits, but the taxpayer may still need an arrangement to pay the revised £5,000.

Example of Using Both Options

A sole trader is asked to pay £7,000 on 31 July 2026. Current accounts show that the correct revised instalment should be £4,500.

The trader successfully claims to reduce the payment to £4,500 but can pay only £1,500 immediately. The remaining £3,000 may then be considered for Time to Pay.

This approach avoids arranging instalments for tax that is not expected to be due while still addressing the genuine cash-flow shortfall.

Information HMRC May Ask for

Where you contact HMRC directly, be prepared to provide your Unique Taxpayer Reference, the amount owed, your bank details and a clear repayment proposal.

HMRC may also ask about your monthly income, essential expenditure, existing debts, savings, investments and other assets. For a business, it may request details of expected receipts, business expenditure and future tax obligations.

If you have savings or readily available assets, HMRC may expect you to use them to reduce the debt before agreeing an extended repayment period.

How Long Will HMRC Give You to Pay?

There is no standard repayment term for every taxpayer. HMRC considers what is affordable and how quickly the liability can reasonably be cleared.

The online Self Assessment service is commonly used for arrangements that can be completed within 12 months. Longer arrangements may be considered through direct contact with HMRC, but additional evidence and a more detailed affordability review may be required.

HMRC will also consider whether another January or July payment will become due before the arrangement ends. A plan that clears one debt but makes the next liability unaffordable may not be sustainable.

What Happens If You Miss a Time to Pay Instalment?

Contact HMRC promptly if you cannot make an agreed payment. HMRC may review or renegotiate the arrangement where your circumstances have changed and the revised proposal remains realistic.

Failing to make payments without contacting HMRC can cause the arrangement to default. HMRC may then demand the remaining balance and resume debt collection action.

You should also contact HMRC if another tax bill becomes due while the plan is active. It may be possible to review the arrangement, but this is not automatic.

Common Mistakes When Taxpayers Cannot Pay the July Bill

Assuming the Payment Can Be Skipped

The July instalment remains legally due unless HMRC reduces it. Not receiving a separate bill or reminder does not remove the obligation.

Reducing the Amount Without a Tax Estimate

Unaffordability is not evidence that the tax liability is lower. An unsupported reduction can lead to interest when the final return is submitted.

Making Informal Monthly Payments

Sending smaller payments without an agreed arrangement does not prevent HMRC from pursuing the remaining debt. Establish a formal plan where one is needed.

Waiting for HMRC to Make Contact

Interest runs from the original deadline. Early contact provides more time to agree an affordable solution and demonstrates that you are trying to resolve the debt.

Ignoring the Next January Liability

A payment arrangement for the July instalment does not remove the balancing payment or the next payment on account. Include upcoming liabilities in your cash-flow planning. Understanding why you should maintain a tax reserve can help you avoid repeating this problem, and even a simple approach to saving to pay tax each month makes the next bill far easier to absorb.

Assuming Time to Pay Stops Interest

Interest normally continues on the unpaid balance throughout the arrangement. Paying more upfront or selecting a shorter affordable term can reduce the total cost.

Practical Steps Before 31 July 2026

Start by checking your HMRC online account to confirm the amount due and the tax year to which it relates. Review your 2025/26 records and estimate the final liability before deciding whether the payment should be reduced.

Pay as much as you can by the deadline if the full amount is not available. Then use HMRC’s online payment-plan service or contact HMRC about the remaining balance.

Prepare a realistic monthly budget before proposing an instalment amount. It should be affordable alongside your essential living or business costs and future tax obligations.

July Tax Payment Case Study: When You Cannot Pay in Full

James, a self-employed consultant, visited our Farringdon office after realising he could not afford his full 31 July tax payment. Several customers had paid later than expected, leaving him with a temporary cash-flow shortage just before the deadline.

We first checked whether his payment on account was genuinely too high. His profits had remained broadly similar, so reducing the payment simply because he lacked the cash would not have been appropriate. Instead, we explained that HMRC Time to Pay may allow a valid tax liability to be spread over manageable instalments, although interest will normally continue on the unpaid balance.

The discussion also highlighted a wider issue: James had been treating tax as an expense to deal with only when HMRC deadlines approached. We discussed maintaining a separate tax reserve, setting aside part of his income regularly so future January and July payments were already budgeted for.

James understood that when you cannot pay a tax bill, the first question is whether the bill is actually correct. If it is too high, a supported reduction may be appropriate; if the tax is genuinely due but unaffordable, payment support may be the better route. Planning ahead with a tax reserve can then help prevent the same cash-flow pressure at the next deadline.

Get Support if You’re Struggling With Your July Tax Payment

If you are struggling to fund your July tax payment, acting before the deadline can help you understand your options and reduce the risk of additional interest or penalties. Cigma Accounting supports clients across the Fulham, including individuals and business owners in Chelsea Harbour and West Kensington, helping taxpayers manage upcoming liabilities and explore practical solutions when cash flow is tight.

If you cannot pay tax bill amounts in full, options such as HMRC Time to Pay may allow eligible taxpayers to arrange manageable instalments. Getting Self Assessment payment help before your 31 July tax payment becomes overdue can give you more time to assess your position, contact HMRC where necessary, and avoid allowing unpaid tax liabilities to escalate.