How do I reduce my Self Assessment payments on account?

Full answer

If your income has fallen since the tax year your payments on account were based on -- for example your self-employed profits have dropped, a contract has ended, or you have moved from self-employment into PAYE employment -- you do not have to pay the full amount HMRC initially calculated. **How to apply** The simplest route is online: log into your Government Gateway account, go to your Self Assessment section, and select the option to reduce your payments on account, entering your revised estimate of the current year's total tax liability. Alternatively, you can complete and post form SA303 to HMRC. You need to do this before the payment is due to avoid paying the original higher amount first and waiting for a refund. **What figure to use** You need a realistic estimate of your actual tax liability for the CURRENT tax year (the one the payments on account relate to), not simply a guess. This means estimating your profits or income for the year, applying Income Tax and Class 4 National Insurance at the appropriate rates, and working out roughly what your final Self Assessment bill will be -- ideally with the help of an accountant or bookkeeping records for the months already elapsed. **The risk of reducing too far** If you reduce your payments on account below what your actual final liability turns out to be, HMRC treats the shortfall as though it was paid late, charging interest on the difference from the original due date (31 January or 31 July) until you actually pay the balancing amount -- even though you had a genuine, honestly held (but ultimately too optimistic) belief that your income would be lower. There is no fixed penalty just for getting the estimate wrong, but the interest can still be a meaningful cost if your estimate is significantly off. **Worked example** David's 2024/25 tax bill was £8,000, setting payments on account of £4,000 each for 2025/26. Partway through 2025/26 he loses a major client and reasonably expects his profits (and tax bill) to roughly halve to about £4,000 for the year. He applies online to reduce each payment on account to £2,000. If his final 2025/26 bill does come out at approximately £4,000, the reduction was accurate and he avoids overpaying and waiting for a refund. If it actually comes out at £6,000, he will owe an extra £2,000 balancing payment by 31 January 2027, with interest charged on that shortfall backdated to the original payment on account due dates. **Practical tip** When in doubt, reduce conservatively (not to zero) rather than eliminating the payments on account entirely, and revisit the estimate again nearer the second deadline if your circumstances become clearer -- you can adjust the figure more than once during the year.

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More answers

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