How to Reduce Your Payment on Account in 2026/27
Payments on account too high for 2026/27? Learn how to legally reduce or claim back your Self Assessment payments on account without risking HMRC interest.
Quick answer
You can reduce your payments on account whenever you reasonably expect your income or profits to fall. Apply through your online Self Assessment account or by submitting form SA303, lowering each instalment to what you genuinely expect to owe -- even to zero. The catch: if you reduce below your actual liability, HMRC charges interest on the shortfall.
What a payment on account actually is
A payment on account is HMRC's way of collecting tax in advance from people who are not fully taxed at source. If your Self Assessment bill is more than GBP 1,000, and less than 80% of your tax was already deducted (for example through PAYE), you must make two advance payments towards the following year.
Each instalment is half of your previous year's combined Income Tax and Class 4 National Insurance liability. They fall due on 31 January and 31 July. When you file the next return, the two payments are credited against your actual bill, and you either pay a balancing amount or receive a refund.
For 2026/27, Class 4 National Insurance is 6% on profits between GBP 12,570 and GBP 50,270, then 2% above GBP 50,270. Income Tax sits on top: the Personal Allowance is GBP 12,570, basic rate 20% up to gross income of GBP 50,270, higher rate 40% to GBP 125,140, and additional rate 45% above that. Use the
Self-Employed Tax Calculator
Calculate income tax, Class 2 and Class 4 National Insurance for self-employed and sole traders for 2025/26.
Open Self-Employed Tax calculatorA worked example of how the figures stack up
Suppose your 2025/26 Self Assessment bill (Income Tax plus Class 4 NI) came to GBP 6,000. HMRC will then ask for two payments on account of GBP 3,000 each towards 2026/27.
| Date | Payment | What it covers |
|---|---|---|
| 31 Jan 2027 | GBP 6,000 | Balancing payment for 2025/26 (GBP 3,000) plus first payment on account for 2026/27 (GBP 3,000) |
| 31 Jul 2027 | GBP 3,000 | Second payment on account for 2026/27 |
| 31 Jan 2028 | Variable | Balancing payment for 2026/27, plus first payment on account for 2027/28 |
That first January figure of GBP 6,000 is the classic cash-flow shock for the newly self-employed. The system is effectively asking you to pay one and a half years of tax in a single month. Knowing this in advance is the single most useful piece of budgeting you can do.
When you can legitimately reduce your payments
You are entitled to reduce both payments on account whenever you reasonably expect your 2026/27 liability to be lower than your 2025/26 liability. Common, valid reasons include:
- A drop in trading profits or a slower year of work.
- Losing a major client or contract.
- Larger pension contributions reducing your taxable income.
- Significant capital allowances on equipment or a van.
- Moving partly or wholly into PAYE employment, so more tax is collected at source.
- A one-off spike in the prior year (a large project) that will not repeat.
The key word is "reasonably". HMRC does not require certainty, only a genuine, defensible estimate. Keep a short note of how you arrived at the figure -- your forecast profit, expected allowances, and any pension plans -- in case you are ever asked.
How to make the reduction
There are two routes:
- Log in to your online Self Assessment account, find the payments on account section, and enter your reduced figure. This is the fastest method and updates both instalments.
- Complete form SA303 and send it to HMRC. This is the paper alternative if you cannot use the online service.
You can reduce both payments to any amount, including zero. The change applies to both the January and July instalments together.
The risk: interest on a shortfall
Here is the trade-off you must understand. If you reduce your payments on account and your final bill turns out higher than you estimated, HMRC charges interest on the difference. Crucially, that interest runs from the original due date of each instalment, not from when you eventually pay.
So if you cut a GBP 3,000 January instalment to GBP 1,000, and your true liability was GBP 3,000 all along, you will be charged interest on the GBP 2,000 shortfall from 31 January onwards. There is no fixed penalty for an honest underestimate, but the interest accumulates daily and is not trivial.
The HMRC late-payment interest rate changes periodically and tracks the Bank of England base rate plus a margin. Because that figure moves, check the current rate on gov.uk rather than relying on a number quoted in an article. The principle to remember is simple: only reduce as far as your genuine forecast supports.
Lowering the underlying liability, not just the instalment
Reducing a payment on account only defers the question -- the real win is shrinking the tax bill that drives it. Several levers are entirely legitimate:
Pension contributions
A personal pension contribution reduces your taxable income, lowering both Income Tax and the figure that feeds future payments on account. The Annual Allowance for 2026/27 is GBP 60,000 (or GBP 10,000 under the Money Purchase Annual Allowance if you have flexibly accessed a pension). Higher and additional rate relief is claimed through your return. Model the effect with the
Pension Calculator
Estimate your pension pot at retirement and projected annual income.
Open Pension calculatorCapital allowances and legitimate expenses
Buying equipment, tools, or a van for the business can generate capital allowances that cut taxable profit in the year of purchase. Ordinary allowable expenses -- the wholly-and-exclusively business costs -- do the same job throughout the year. Good record-keeping is what turns these into real savings.
Timing of income
If you have flexibility over when you invoice or recognise income, spreading it across tax years can keep you below a threshold such as the GBP 50,270 higher-rate point or the GBP 100,000 line where the Personal Allowance starts to taper away at GBP 1 for every GBP 2, creating a 60% effective rate up to GBP 125,140. Tread carefully and stay within the rules, but timing is a legitimate planning tool.
Comparison: reduce now versus pay and reclaim later
Reducing your payment on account up front improves cash flow immediately but carries interest risk if you underestimate. Paying the full amount and reclaiming later is safe and interest-free for you, but ties up cash with HMRC until you file and request a refund. The right choice depends on how confident you are in your forecast and how much the cash flow matters to your business.
| Approach | Cash flow | Risk | Best for |
|---|---|---|---|
| Reduce now (SA303 or online) | Frees cash immediately | Interest if you underestimate | Confident, declining-income forecasts |
| Pay in full, reclaim later | Cash tied up until refund | None -- you only over-pay yourself | Uncertain forecasts or volatile income |
| Reduce conservatively | Partial cash relief | Lower interest exposure | Most self-employed taxpayers |
A conservative middle path -- reducing by a sensible margin rather than to the bone -- often gives the best balance of cash flow and safety.
Claiming back an overpayment
If you paid the full instalments and your final bill is lower, you do not lose the money. Once you file your return, HMRC creates a credit on your account. You can then request a repayment through your online account, or leave it to offset your next liability.
The practical tip: file your return as early as you can after 6 April. The sooner HMRC sees the lower figure, the sooner your overpayment is released rather than sitting with HMRC until the next January deadline.
Putting it together
Payments on account are not optional extras -- they are a structural feature of Self Assessment once your bill passes GBP 1,000. But they are flexible. You can reduce them when income genuinely falls, you can lower the underlying liability through pensions and allowances, and you can reclaim anything you overpay.
The discipline that matters is forecasting. Estimate your 2026/27 profit honestly, calculate the tax and Class 4 National Insurance it implies with the
Self-Employed Tax Calculator
Calculate income tax, Class 2 and Class 4 National Insurance for self-employed and sole traders for 2025/26.
Open Self-Employed Tax calculatorIncome Tax Calculator
Work out how much income tax you owe using the latest 2025/26 UK tax bands.
Open Income Tax calculatorFrequently asked questions
What is a payment on account?
A payment on account is an advance payment towards your next Self Assessment tax bill. HMRC asks for these when your tax bill is over GBP 1,000 and less than 80% of your tax is collected at source. You make two equal payments, each worth half of your previous year's tax liability, due on 31 January and 31 July. They are credited against your eventual bill for that year.
When are payments on account due?
The first payment on account is due on 31 January, alongside any balancing payment for the previous tax year. The second is due on 31 July. Each instalment is normally half of your prior year's combined Income Tax and Class 4 National Insurance liability. If those two instalments do not cover your final bill, a balancing payment falls due the following 31 January.
Can I reduce my payments on account?
Yes. If you expect your income or profits to fall, you can ask HMRC to reduce both payments on account. Do this through your online Self Assessment account or on form SA303. You can reduce the figure to whatever you reasonably expect to owe, including to zero. Base your estimate on a realistic forecast, because reducing too far triggers interest charges.
What happens if I reduce my payments on account too much?
If you cut your payments below what you actually owe, HMRC charges interest on the shortfall from each original due date until you pay. There is no separate penalty for an honest underestimate, but the interest can be significant. If you deliberately reduce payments you know are too low, HMRC may also charge a penalty. Always base reductions on a genuine forecast.
Does payment on account include National Insurance?
Payments on account cover your Income Tax and Class 4 National Insurance. For 2026/27 Class 4 is charged at 6% on profits between GBP 12,570 and GBP 50,270, then 2% above that. They do not include Class 2 National Insurance, capital gains tax, or the student loan element, which are all settled through the balancing payment instead.
How do I claim back overpaid payments on account?
If your final tax bill comes in lower than the payments you made, HMRC creates a credit on your account once you file your return. You can request a refund through your online account or wait for it to offset future liabilities. File your return early to free up any overpayment sooner rather than leaving cash tied up with HMRC until the next deadline.
Do I have to make payments on account in my first year of trading?
Not at the very start. In your first year of self-employment you pay the full tax bill by 31 January after the tax year ends. However, if that first bill exceeds GBP 1,000, you will also have to make a first payment on account for the following year on the same date, so the January payment can feel large. Budget for this in advance.
Can a pension contribution reduce my payment on account?
A personal pension contribution reduces your taxable income and therefore your tax liability, which feeds into a lower payment on account in future years. The Annual Allowance for 2026/27 is GBP 60,000. Higher and additional rate relief is claimed through your tax return. Contributions made before the tax year end count towards reducing that year's bill.
What is the GBP 1,000 threshold for payments on account?
HMRC only requires payments on account if your Self Assessment bill is more than GBP 1,000 and at least 20% of your tax is not already collected at source, for example through PAYE. If your bill is GBP 1,000 or under, or most of your tax is deducted at source, you simply pay any balance by 31 January and make no advance payments.
Will reducing my payment on account affect my credit or HMRC record?
Reducing a payment on account is a routine, legitimate request and does not harm your credit file or flag you with HMRC, provided your estimate is honest. The only consequence of an unrealistic reduction is interest on any shortfall. Keep a note of how you calculated your forecast in case HMRC ever asks you to justify the figure.
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