HMRC issues urgent tax deadline warning to prevent millions 'significantly increasing the amount owed'

Self Assessment taxpayers have just two days left to make their second payment on account before HM Revenue and Customs (HMRC) begins charging interest on any unpaid tax.

The deadline falls at midnight on July 31, with taxpayers who fail to pay in full facing a late payment interest rate of 7.75 per cent on outstanding balances.

The interest charge will continue to accrue until the debt is cleared, increasing the overall amount owed to HMRC.

Elsa Littlewood, private client services tax partner at accountancy and business advisory firm BDO, said: "Summer can be an expensive time for families with school holidays and childcare costs weighing on people's budgets."

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Ms Littlewood added: "Those who miss the deadline or fail to pay the full amount due should be aware that a 7.75 per cent late payment interest rate will be applied to all outstanding amounts owed after July 31.

"This can significantly increase the amount owed to HMRC as interest will continue to accrue while the liability remains outstanding."

The payments on account system requires most Self Assessment taxpayers to make two advance payments towards their annual income tax bill.

Each payment is normally equal to half of the previous year's tax liability.

The first payment is due by midnight on January 31 during the relevant tax year, while the second must be paid by July 31 after the end of that tax year.

If any tax remains outstanding after both payments have been made, a balancing payment is due by the following January.

Not every Self Assessment taxpayer is required to make payments on account.

Those whose latest tax bill was less than £1,000 are exempt, as are taxpayers who had more than 80 per cent of their previous year's tax collected at source through PAYE or another deduction system.

For those who are required to make payments on account, missing the July 31 deadline could result in additional costs.

HMRC is also consulting on proposals that could fundamentally change how self-employed people pay tax.

The proposals would bring tax payments closer to real time, potentially requiring monthly or quarterly payments instead of the current twice-yearly system.

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BDO has raised concerns about the plans, warning they could create cashflow pressures for self-employed workers, particularly those with irregular income or delayed customer payments.

Ms Littlewood said: "HMRC is currently consulting on accelerating the timing of tax payments.

"This raises a number of issues around whether tax may fall due before cash is received.

"There are also questions around how taxpayers will be able to manage the transition period during which they may be asked to pay for two years' tax in one year."

BDO said it intends to respond to the consultation on behalf of its self-employed and partnership clients.

Taxpayers who expect their 2025-26 tax liability to be lower than the previous year's can apply online to reduce their payments on account.

Those who cannot afford to pay in full may also be able to agree a payment plan with HMRC.

Ms Littlewood said: "For those who are going to struggle to pay, there is the option of setting up a Time to Pay arrangement with HMRC.

"For qualifying debts of up to £30,000, taxpayers may be able to apply for a Time to Pay arrangement online."

Taxpayers with unpaid tax relating to the 2024-25 tax year should also be aware of further penalties.

Ms Littlewood said: "It is also worth remembering that if you have not yet paid your tax liability that was due on January 31, 2026, for the 2024-25 tax year, a five per cent penalty can be charged for payments that are six months late.

"HMRC can also charge penalties if the tax return is filed late."

The July 31 payment deadline is followed closely by another key compliance date for many self-employed workers and landlords.

By August 7, around 864,000 sole traders and landlords earning more than £50,000 from self-employment or property must submit their first quarterly update under Making Tax Digital for Income Tax.

Making Tax Digital is now a legal requirement for those within its scope.

Ms Littlewood said: "Making Tax Digital is now a legal requirement and those taxpayers in scope should check they are signed up, that their software is compatible and their MTD summary is submitted on time."

She added: "This is a busy period for self-employed taxpayers with lots to think about, so those in scope will need to devote some time and effort to making sure they remain compliant."

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