How to Reduce Your Self Assessment Payments on Account UK 2026

Payments on account are advance payments towards your next year's tax bill, calculated as 50% of the previous year's tax liability each. They are due on 31 January and 31 July. If your income this year is going to be significantly lower than last year, making full payments on account may mean you overpay tax. Reducing them is legitimate and straightforward -- but there are risks if you get the estimate wrong.

What Are Payments on Account?

If your Self Assessment tax bill is above GBP 1,000 and less than 80% of your tax is collected at source (via PAYE), HMRC requires you to make two advance payments towards the following year's tax:

• First payment on account: 31 January (the same deadline as settling the previous year's balance)
• Second payment on account: 31 July

Each payment is 50% of the prior year's total Self Assessment tax liability (including Class 4 NI but excluding Class 2 NI and student loan repayments). If you owed GBP 8,000 last year, you must pay GBP 4,000 in January and GBP 4,000 in July towards this year's bill.

When Can You Reduce?

You can apply to reduce your payments on account when you expect your tax liability for the current year to be lower than the previous year. Common reasons include:

• Your trading income or self-employment profit has fallen
• You have taken on more PAYE employment and more tax is now collected at source
• You have made pension contributions that will reduce your taxable income
• You have lost rental income (property sold, tenants left)
• You received a one-off income source last year (bonus, capital gain, inheritance) that will not recur

You are not required to provide detailed evidence upfront -- you declare what you expect your tax to be, and HMRC adjusts your payments on account accordingly.

How to Reduce: SA303 Form and Online

Online via Personal Tax Account (fastest): Log in to your PTA at GOV.UK and navigate to your Self Assessment account. Under payments on account you will see an option to claim a reduction. You enter your estimated tax for the current year and the system recalculates your payments. This is instantaneous -- you do not need to wait for HMRC confirmation.

Form SA303: The paper version of the reduction claim is SA303. You complete it with your UTR, the relevant tax year, and your revised estimate of the year's liability. The form can be downloaded from GOV.UK or you can request one by calling the helpline. Post it to HMRC's Self Assessment address (BX9 1AS) well before your payment deadline.

Via your online tax return: If you are filing your return before the payment on account is due (for example, submitting your 2024/25 return before 31 January 2026), you can enter a reduced payment on account figure directly in the return itself under the payments on account section.

Timing: Before the January Deadline

Ideally you should reduce your January payment before 31 January, and your July payment before 31 July. Reducing in advance avoids having to pay in full and then await a repayment. If you have already paid the full amount and later reduce, HMRC will credit the overpayment to your account (it reduces your January balancing payment) rather than automatically repaying it.

The Risk: HMRC Interest at 7.5%

If you reduce your payments on account and your actual tax liability turns out to be higher than you estimated, HMRC will charge interest on the underpaid amount from the date each payment on account was due. The current HMRC late payment interest rate is 7.5% per annum.

This is not a penalty -- it is interest only. But 7.5% is not trivial, especially on large sums. If your income estimate is uncertain, it is worth erring on the side of slight over-payment rather than under-payment.

There is no penalty for making an honest and reasonable reduction claim. The system is designed for genuine reductions, not deliberate under-declaration. However, if HMRC believes you reduced without a reasonable basis, they can query the claim -- so ensure your estimate is based on realistic expected income.

Worked Example

Sarah had a tax liability of GBP 12,000 in 2024/25 (her base year). Her payments on account for 2025/26 are GBP 6,000 in January 2026 and GBP 6,000 in July 2026.

In early 2026 she expects her 2025/26 income to be significantly lower -- she estimates a tax liability of around GBP 7,000. She applies online to reduce both payments on account to GBP 3,500 each. She pays GBP 3,500 in January instead of GBP 6,000, saving GBP 2,500 in cash flow immediately.

When she files her 2025/26 return in autumn 2026, her actual liability is GBP 7,400. She owes GBP 400 more than she estimated across the two payments on account, plus interest at 7.5% from the payment due dates on that GBP 400. The interest cost is minimal -- perhaps GBP 20-30 -- and the cash flow benefit was substantial.

Class 4 NI and Student Loan Payments

Note that payments on account cover income tax and Class 4 National Insurance, but not student loan repayments or the Class 2 NI charge (though Class 2 was abolished for most self-employed from April 2024). Student loan repayments are collected via a separate balancing charge, not through payments on account.

When estimating your reduced payment, factor in Class 4 NI -- it is 9% on profits between GBP 12,570 and GBP 50,270, and 2% above that. Forgetting Class 4 NI is one of the most common causes of under-reduced payments on account leading to unexpected interest.