Yes you are right; the July payment is based on your previous year’s tax liability. There are in fact two ways that you can reduce your tax payments to take account of a reduction in profits.
Firstly, you can submit form SA303 to HM Revenue & Customs (HMRC). On this form, you must estimate what you think your tax liability for 2011 will actually be and why it has fallen from last year. The form must be submitted by 31 January following the tax year, i.e. a SA303 for a 2010/11 tax return must be submitted by 31 January 2012. Be aware that if you reduce your payments too low, HMRC will levy interest- but you can amend a SA303 if you discover this in time.
Alternatively, you could just prepare and submit your tax return. This will then trigger the comparison of these estimated payments (called Payments on Account), with your actual tax liability. So any over or underpayment will be calculated.
Please feel free to contact your local TaxAssist Accountant if you would like some help with the completion of a SA303 or your tax return.