9. October 2026

How to Reduce Payments on Account When Your Income Falls

Article written by PR Accountants LTD in the category Self Assessment

Payments on account can create a significant cashflow problem when income falls.

The instalments are normally based on the previous year's Self Assessment liability. If that was a strong year, HM Revenue and Customs may ask for two substantial advance payments towards a year in which profits, rental income or other taxable income are much lower.

You do not necessarily have to pay the original amounts and wait until the next tax return to reclaim the excess.

UK tax rules allow a taxpayer to claim to reduce or cancel payments on account where there are reasonable grounds for believing that the current year's relevant liability will be lower.

However, the claim needs to be calculated carefully.

Reducing the payments simply because cash is tight is not enough. If the final liability is higher than the reduced amount, HMRC can charge interest on the shortfall from the original payment dates. A false or persistently unjustified claim can also create a penalty risk.

This guide explains how payments on account work, when a reduction is appropriate, how to estimate the revised instalments, how to submit a claim and what to do if income later recovers.

What are payments on account?

Payments on account are advance payments towards a person's next Self Assessment bill.

They normally cover:

Income Tax collected through Self Assessment
Class 4 National Insurance for the self-employed

They do not normally include:

Capital Gains Tax
Student loan repayments
Postgraduate loan repayments

Those amounts are generally dealt with in the balancing payment after the tax return is completed.

Payments on account are usually made in two equal instalments:

The first is due on 31 January during the tax year concerned
The second is due on 31 July after the end of that tax year

Any remaining balance is due on the following 31 January.

For example, the normal payment dates for the 2026/27 tax year are:

First payment on account by 31 January 2027
Second payment on account by 31 July 2027
Balancing payment, if any, by 31 January 2028

The 2026/27 instalments are generally calculated using the relevant 2025/26 Self Assessment liability.

Why the calculation can be wrong for the new year

The system assumes that the next year's liability will be broadly similar to the previous year's liability.

That is administratively simple, but it cannot predict changes such as:

A fall in business turnover
Lower profit margins
The loss of a major customer
Reduced working hours
Retirement or business closure
A property becoming vacant
A property being sold
Higher business or property expenses
A move from self-employment into PAYE employment
More tax being deducted through PAYE or CIS
A larger pension contribution
A new loss or relief claim
A reduction in dividends or investment income

Without a reduction claim, the original payments remain legally due even if the taxpayer expects the final bill to be much lower.

How HMRC calculates the original payments

Each payment on account is normally half of the relevant previous-year amount.

Suppose a sole trader's 2025/26 calculation shows £12,000 of Income Tax and Class 4 National Insurance payable through Self Assessment after tax deducted at source.

The normal 2026/27 payments on account would be:

£6,000 due on 31 January 2027
£6,000 due on 31 July 2027

The taxpayer will therefore have paid £12,000 towards 2026/27 before the 2026/27 tax return is filed.

If the actual 2026/27 relevant liability is £12,800, the remaining £800 is the balancing payment due on 31 January 2028.

If the actual liability is £8,000, the account is overpaid by £4,000. The excess can be repaid or used against another liability.

If the taxpayer can reasonably forecast the £8,000 liability in advance, the two payments can potentially be reduced to £4,000 each instead of paying £6,000 each.

When payments on account are not required

Payments on account are generally not required where either:

The relevant previous-year liability was less than £1,000
More than 80% of the total tax liability was collected outside Self Assessment, such as through PAYE or another deduction at source

The £1,000 test does not mean that no tax is payable. It means the taxpayer may pay the liability as a balancing payment without advance instalments for the following year.

The 80% rule can apply to someone with a mixture of PAYE and other income. A tax return may still be required, but payments on account may not arise because most of the liability was already collected at source.

Before making a reduction claim, check whether payments on account should have arisen at all. An incorrect tax return entry can sometimes create instalments that the rules would otherwise exclude.

When can you reduce payments on account?

HMRC states that a reduction can be claimed where:

Business profits or other income go down
The tax relief to which the taxpayer is entitled goes up
Tax deducted at source is higher than in the previous tax year

The legal test is based on the amount the taxpayer reasonably believes will be payable for the current year.

The reduction should reflect the expected liability, not a convenient round number and not the amount currently available in the bank.

Common reasons for a valid reduction

Business profits have fallen

A sole trader may have lower turnover, higher costs or both.

Examples include:

A major contract ending
Fewer customers
Price reductions
Increased wages or subcontractor costs
Higher premises or finance costs
Illness reducing working capacity
A period of maternity or parental leave
A seasonal downturn
Temporary closure

The forecast should be based on expected taxable profit, not only the fall in sales.

A 20% reduction in turnover does not necessarily mean a 20% reduction in tax. Fixed costs, variable costs, allowances and tax bands all affect the outcome.

The business has ceased

If self-employment ends during the year, the final taxable profit may be much lower than the previous year's profit.

The estimate should still include:

Trading income up to cessation
Closing stock or work in progress where relevant
Final expenses
Capital allowance balancing adjustments
Bad debts and recoveries
Any overlap or basis-period adjustments that remain relevant
Other personal income

Stopping the business does not automatically reduce the payment on account to nil. The taxpayer may still have profit and tax for the part-year.

Rental profit has fallen

A landlord may have lower taxable rental profit because:

A property is vacant
Rent has fallen
A tenant has not paid
A property has been sold
Allowable repairs have increased
Letting agent or insurance costs have risen
The property business has made a loss

Use taxable property profit rather than net cashflow. Mortgage capital repayments and property improvements may reduce cash without reducing taxable profit in the same way.

For residential landlords, finance costs are subject to specific rules. Do not assume that the full mortgage interest is deducted from rental income when forecasting tax.

Dividends or investment income have fallen

A director-shareholder may receive smaller dividends because company profits or cash reserves have reduced.

An investor may receive less dividend or savings income.

The forecast should consider:

The amount expected during the whole tax year
The dividend allowance
Savings allowances
The taxpayer's tax bands
Other income using those bands
Any change in dividend tax rates

Do not reduce payments merely because dividends have not yet been declared. Consider whether further distributions are likely before the tax year ends.

More tax is being deducted at source

Payments on account are based on the amount remaining after relevant tax deductions.

A reduction may be justified if more tax will be collected through:

PAYE employment
A pension tax code
CIS deductions
Non-resident landlord deductions
Other qualifying deductions at source

For example, a person who moves from self-employment into full-time employment may have more of the year's liability collected through PAYE. Their Self Assessment payments may therefore be lower even if total income has not fallen dramatically.

Tax relief has increased

The liability may fall because of a larger or new relief claim, including:

Personal pension contributions
Gift Aid donations
Trading losses
Property losses, subject to the applicable restrictions
Capital allowances
Venture capital reliefs
Marriage Allowance where relevant
Foreign Tax Credit Relief

The relief must be available for the year and calculated correctly. A hoped-for claim that has not been made or does not meet the conditions is not a reliable basis for reducing tax.

When should you not reduce payments on account?

Cashflow is tight but the tax liability is unchanged

A payment-on-account reduction is not a payment plan.

If the final liability is expected to be the same but the taxpayer cannot afford the instalment, the correct response is to explore payment options, including a Budget Payment Plan before the deadline or Time to Pay where eligible.

Using a false reduction to postpone tax can create interest and possible penalties.

Turnover has fallen but profit has not

Turnover can fall while taxable profit remains stable or rises.

This may happen where:

Low-margin work has ended
Staff costs have reduced
Supplier prices have fallen
The business has cut overheads
The sales mix has improved

Forecast profit, not revenue alone.

Drawings have fallen

Sole trader drawings do not determine taxable profit.

Taking less money from the business bank account does not by itself reduce the tax bill. The taxpayer is taxed on adjusted business profit, not personal withdrawals.

The bank balance is lower

A lower balance may reflect equipment purchases, loan repayments, VAT payments, stock purchases or personal drawings. These do not all reduce taxable profit.

A large expense is capital

Buying equipment, a vehicle or improving a property can reduce cash significantly. Tax relief may arise through capital allowances or other rules, but the cash cost is not always an immediate revenue deduction.

Income has only been delayed

If an invoice remains taxable in the current year under the accounting method used, late customer payment may affect cashflow without reducing taxable profit.

Cash basis and traditional accounting can produce different timing outcomes. Confirm the applicable method before forecasting.

The reduction is based only on the first few months

A short downturn may reverse later in the year. Consider confirmed contracts, seasonal patterns and realistic recovery assumptions.

The difference between reducing and cancelling payments

A reduction lowers the two instalments to a revised amount.

A cancellation reduces them to nil.

Cancellation may be appropriate where the expected relevant liability is nil because, for example:

The business has ceased and losses eliminate the year's taxable profit
The taxpayer has moved entirely into PAYE and sufficient tax will be deducted
Reliefs eliminate the relevant Income Tax and Class 4 National Insurance
Property losses and other circumstances mean no relevant amount will be payable

Nil should not be selected automatically just because income has fallen sharply. A part-year profit, other untaxed income or Class 4 National Insurance can still create a liability.

Which tax year are you reducing?

This is a frequent source of errors.

The payment made on 31 January includes two different components:

A balancing payment for the tax year that has ended
A first payment on account for the tax year currently in progress

For example, on 31 January 2027 a taxpayer may pay:

The balancing amount for 2025/26
The first payment on account for 2026/27

If income falls during 2026/27, it is the 2026/27 payments on account that may be reduced.

The reduction does not change the correctly calculated 2025/26 balancing payment.

Reducing the wrong year can leave the intended amount overdue and accruing interest.

A practical calculation method

The safest method is to prepare a provisional tax calculation for the current year.

Step 1: forecast income to the end of the tax year

Estimate each source separately:

Self-employment profit
Partnership profit share
UK property profit
Foreign income
Employment income
Pension income
Savings interest
Dividends
Trust and estate income
Other taxable income

Use actual figures to date and reasonable estimates for the remaining months.

Step 2: adjust accounting profit for tax

Business accounts profit may differ from taxable profit.

Consider:

Private use adjustments
Disallowable expenses
Capital allowances
Depreciation added back
Motor expense restrictions
Loss relief
Stock and work in progress
Basis-period rules
Cessation adjustments

For property income, distinguish repairs from improvements and apply the correct finance cost rules.

Step 3: include personal allowances and reliefs

Review:

Personal Allowance entitlement
Personal Allowance taper where adjusted net income exceeds £100,000
Pension contributions
Gift Aid
Marriage Allowance
Trading and property allowances
Losses brought forward or claimed against the year
Foreign Tax Credit Relief

Step 4: calculate Income Tax and Class 4 National Insurance

Apply the tax rates and thresholds for the year being estimated.

Do not simply halve the expected fall in profit. The taxpayer may move between tax bands, regain part of the Personal Allowance or have different dividend and savings rates.

Step 5: deduct tax expected to be collected at source

Include supported estimates of:

PAYE tax
CIS deductions
Non-resident landlord deductions
Other relevant tax credits

Step 6: identify the relevant payment-on-account amount

Remove liabilities that are not included in payments on account, such as Capital Gains Tax and student loan repayments.

Step 7: divide the expected relevant amount into two instalments

Each revised payment is normally half of the estimated relevant amount.

Step 8: add a sensible margin where the forecast is uncertain

A conservative forecast can reduce the risk of interest. Paying slightly more can be preferable to reducing to the lowest possible figure on optimistic assumptions.

Worked example: sole trader profit falls

Nadia's 2025/26 relevant Self Assessment liability is £18,000.

Her original 2026/27 payments on account are therefore:

£9,000 due on 31 January 2027
£9,000 due on 31 July 2027

During 2026/27, her largest customer closes and forecast taxable profit falls substantially. A detailed tax estimate shows expected 2026/27 Income Tax and Class 4 National Insurance of £10,000 after relevant deductions.

Nadia can claim to reduce each payment on account to £5,000.

The reduction is:

£4,000 from the January instalment
£4,000 from the July instalment
£8,000 total cashflow released or no longer payable in advance

If the final 2026/27 liability is £10,600, the £600 difference is payable as a balancing payment by 31 January 2028. Interest may apply to the portion that should have been covered by the original instalment dates, depending on the revised statutory amounts.

Worked example: landlord sells a property

Oliver had £14,000 of relevant Self Assessment liability for 2025/26, largely from property income.

His original 2026/27 payments are £7,000 each.

He sells the rental property in August 2026. The property made £5,000 of taxable profit before the sale and there will be no further rent. His other income is taxed through PAYE.

After calculating the expected property tax and deductions, the relevant amount for 2026/27 is forecast at £2,400.

The revised payments can potentially be reduced to £1,200 each.

Any Capital Gains Tax on the property sale is separate. It does not form part of the reduced payments-on-account estimate and may have its own 60-day reporting and payment deadline.

Worked example: move from self-employment to PAYE

Priya was self-employed throughout 2025/26 and had a relevant liability of £16,000. The original 2026/27 payments are £8,000 each.

She stops self-employment on 30 June 2026 and begins employment in July. PAYE will collect tax from her salary.

Her provisional calculation includes:

Final self-employment profit to 30 June
Employment income to 5 April 2027
PAYE tax expected to be deducted
Class 4 National Insurance on the final business profit
Any other income

The expected amount payable through Self Assessment is £3,000.

Her revised payments could be £1,500 each, subject to the detailed estimate.

The fact that her total annual income remains significant does not prevent a reduction. The important point is that more tax is being collected at source and less is expected through Self Assessment.

Worked example: income falls but the reduction is too aggressive

Samuel's original payments on account are £6,000 each.

He expects profits to fall and reduces both payments to £2,000, based only on three quiet months. He does not prepare a full-year forecast.

The business later recovers and the final relevant liability is £9,000. The correct instalments would have been £4,500 each.

Samuel has underpaid each payment on account by £2,500. Although the final return is filed on time, HMRC can charge interest on the shortfalls from the original due dates.

The problem was not making a reduction claim. It was making the claim without a supportable annual calculation and failing to revise it when circumstances improved.

How to claim online

HMRC allows taxpayers to reduce payments through the online Self Assessment account.

The general process is:

Sign in to the HMRC online account.
Open the latest Self Assessment return or statement.
Select the option to reduce payments on account.
Enter the revised amount.
Provide the reason for the reduction.
Submit the claim.
Save the confirmation.
Check the updated statement.

The account should show the revised instalments after the claim is processed.

Do not assume that submitting the request has changed the amount immediately. Check the statement before making or cancelling a payment.

How to claim using form SA303

If the online service cannot be used, form SA303 can be completed, printed and posted to HMRC.

The form requires information including:

The taxpayer's name and address
The tax office details shown on the statement
The Unique Taxpayer Reference or employer reference
The revised payment amount
The reason for the claim
A signed declaration

The explanation should state the factual reason for the lower estimate.

Examples include:

Taxable business profit is forecast to fall from approximately £80,000 to £45,000 following the loss of a major contract
The property was sold in August 2026 and no further rent is expected
Self-employment ceased in June 2026 and PAYE now collects tax from employment income
CIS deductions for 2026/27 are expected to be substantially higher

"Cannot afford the payment" is not a calculation-based reason for reducing the liability.

Keep a copy of the signed form and evidence of posting.

Can the claim be made on the tax return?

Yes. The Self Assessment return and tax calculation process can include a claim to reduce the following year's payments on account.

This is convenient where the changed circumstances are already known when the return is prepared.

For example, while filing the 2025/26 return, a sole trader may know that the business ceased in July 2026. The return can include a claim to reduce the 2026/27 payments.

The reduction should still be supported by a forecast for the current year.

What is the deadline for making a claim?

HMRC says the claim must be made by 31 January after the end of the tax year to which the payments relate.

For 2026/27 payments on account, the normal claim deadline is 31 January 2028.

That is the legal time limit, but waiting until the final date may defeat the cashflow purpose. If lower income is already clear, review the payments before the January or July instalment is paid.

Can you reduce a payment after it has been paid?

Yes.

HMRC's internal guidance confirms that a taxpayer can claim after paying one or both instalments.

If the processed reduction creates a credit:

The amount may remain on the Self Assessment account for future liabilities
The taxpayer can request repayment
HMRC may set the credit against tax due soon or another debt
Repayment interest may be included where applicable

HMRC may not issue a repayment if another tax amount is due within the next 45 days. It can instead allocate the credit to that liability.

Before requesting a repayment, check upcoming tax and cashflow needs. Leaving the credit on the account may be useful if a balancing payment is expected.

What happens if the revised estimate is too low?

HMRC charges interest on the underpaid difference.

The interest is calculated by reference to the amounts that should have been paid on the original due dates.

For example:

A first instalment shortfall can accrue interest from 1 February
A second instalment shortfall can accrue interest from 1 August

Filing the final return by 31 January does not remove interest that has already run from those earlier dates.

HMRC's late payment interest rate is linked to the Bank of England base rate and can change. Check the current official rate rather than relying on an old article.

Can HMRC charge a penalty for reducing too much?

Interest is the normal consequence where a reasonable estimate later proves too low.

A penalty can be considered where a person fraudulently or negligently makes an incorrect statement in connection with the claim. HMRC's published internal guidance says penalties are intended for gross or persistent abuse, such as:

A blatant claim with no facts supporting a reduction
Repeated unjustified claims
A reduction that is large in absolute and relative terms

This is different from a carefully prepared forecast that later turns out to be wrong because genuine circumstances changed.

Keep evidence showing how the estimate was prepared and update the claim when new information becomes available.

What if income improves after the reduction?

Do not wait until the final return if it becomes clear that the reduced payments are too low.

You can make a further claim to increase the payments on account.

Practical steps are:

Update the profit and tax forecast.
Calculate the revised relevant liability.
Increase the payments through the online account or HMRC process.
Pay the additional amount promptly.
Review any interest shown on the account.

Paying the difference sooner limits further interest.

This review is especially important after:

Winning a large contract
Receiving an unexpected dividend
Completing a profitable property sale where income, rather than a capital gain, arises
Recovering a bad debt
Receiving insurance income
Returning to full working hours
Reducing pension contributions or Gift Aid
Losing a relief previously included in the estimate

What if income falls after the January payment but before July?

Review both instalments.

If the first payment has already been made and the revised annual liability supports a lower figure, the claim can reduce both payments.

The result may be:

A credit from part of the January payment
A reduced or nil July payment
A repayment request
Credit retained against another liability

Do not simply skip the July payment without submitting a claim. Until HMRC processes a valid reduction, the original amount remains due and interest can arise.

What if the business makes a loss?

A current-year trading loss may support a substantial reduction or cancellation, but the tax result depends on how the loss is used.

Possible treatments include:

Carrying the loss forward against future profits of the same trade
Setting it against other income, subject to conditions and limits
Carrying it back
Using special early-years or terminal loss relief where available

The choice can affect:

The current year's liability
Earlier-year repayments
Future payments on account
Personal Allowance use
Tax bands
National Insurance

Do not assume that an accounting loss automatically creates nil tax. The taxpayer may have property, dividend, pension or other taxable income.

Payments on account for landlords

Landlords should forecast taxable rental profit, not the amount left after mortgage payments.

The estimate should include:

Gross rent expected
Allowable agent fees
Insurance
Repairs and maintenance
Service charges and ground rent
Utilities paid by the landlord
Replacement domestic items relief where available
Residential finance cost relief
Property allowance, if used instead of expenses
Joint ownership percentages
Losses brought forward

Capital improvements are not normally deducted as day-to-day property expenses. Mortgage capital repayments are not rental expenses.

A vacant property can reduce income, but expenses incurred while the property remains genuinely available to let may still require careful treatment.

Payments on account for CIS subcontractors

CIS deductions can significantly affect payments on account.

A sole trader or partner should forecast:

Gross CIS turnover
Other trading income
Allowable business expenses
Taxable profit
Class 4 National Insurance
Expected CIS deductions
PAYE tax and other credits

If CIS deductions are expected to rise, less may remain payable through Self Assessment.

Use contractor statements and actual year-to-date deductions. Do not estimate CIS solely as 20% of total turnover because:

Some payments may include materials excluded from the CIS deduction
Some contractors may deduct at 30%
Gross payment status may apply to part of the year
Contractor reporting errors may need correction

Payments on account for company directors

Payments on account apply to the individual's personal Self Assessment liability, not the company's Corporation Tax.

A director's personal forecast may include:

Salary and PAYE deducted
Dividends
Benefits
Director's loan write-offs or releases
Property income
Savings and investment income
Pension contributions
Other personal income

A fall in company turnover does not automatically reduce the director's payments. The personal claim depends on the director's expected taxable income.

If dividends will be lower, confirm the company's distributable reserves, cash position and planned remuneration before making the estimate.

Payments on account and Capital Gains Tax

Capital Gains Tax is not normally included in payments on account.

This creates two important consequences:

A large gain in the current year does not necessarily justify keeping Income Tax payments on account at the old level
Reducing Income Tax payments does not remove the need to budget for Capital Gains Tax separately

A UK residential property disposal can also have a 60-day reporting and payment deadline.

Prepare separate forecasts for income tax and capital gains rather than combining them into one cash figure.

Payments on account and student loans

Student and postgraduate loan amounts calculated through Self Assessment form part of the balancing payment, not the payments on account.

They can still make the January bill higher than expected.

A reduction in payments on account should therefore not be presented as a forecast of the entire January liability. The taxpayer may still owe:

Student loan repayments
Capital Gains Tax
High Income Child Benefit Charge adjustments
Earlier underpayments
Interest

Review the full tax calculation, not only the two instalments.

Cashflow planning after a reduction

Reducing payments can release essential cash, but the money should not automatically be treated as permanent savings.

Good practice includes:

Keeping a separate tax reserve
Updating the forecast monthly or quarterly
Comparing actual profit with the estimate
Reviewing tax deducted at source
Recalculating after major transactions
Filing the return early
Increasing payments if performance improves

If the business recovers, the reserved cash can meet the additional payment. If the lower forecast proves accurate, the reserve can be released once the return confirms the liability.

A quarterly review process

After June

Review the first quarter's results and the July payment. Consider whether the original forecast remains reasonable.

After September

Update the half-year forecast. Seasonal businesses should compare results with the same period in the previous year rather than simply doubling six months.

Before 31 January

Review the expected full-year position before paying the first instalment. Include confirmed year-end work, dividends, pension contributions and other income.

Before 31 July

The tax year has ended, so better information should be available. Prepare draft accounts or at least a reliable year-end estimate before paying the second instalment.

When preparing the final return

Compare the actual liability with the reduced payments. Investigate differences, pay any shortfall promptly and use the outcome to improve future forecasts.

Common mistakes to avoid

Reducing payments to what is affordable

Affordability and liability are separate. Use Time to Pay or another payment arrangement where the tax is still expected to be due.

Using turnover instead of taxable profit

Income Tax for a sole trader is based on taxable profit, not gross sales.

Assuming lower drawings mean lower tax

Personal withdrawals do not determine sole trader profit.

Ignoring other income

A business downturn may be offset by employment, dividends, pension, property or foreign income.

Forgetting Class 4 National Insurance

The forecast must include Class 4 National Insurance where applicable.

Including Capital Gains Tax in the instalment estimate

Capital Gains Tax is normally paid as part of the balancing payment or through a separate property reporting service.

Ignoring tax deducted at source

PAYE, CIS and other deductions can materially reduce the relevant amount.

Reducing both instalments inconsistently

The revised annual amount is normally divided equally. Check how any payment already made affects the account.

Submitting the claim without a reason

HMRC requires a reason. A request without one may not be treated as valid.

Failing to save the calculation

Keep the management accounts, forecast, assumptions and tax computation supporting the claim.

Forgetting to revise the claim when income recovers

An earlier reduction may have been reasonable, but leaving it unchanged after circumstances improve can increase interest.

Cancelling the Direct Debit before HMRC updates the account

Check the revised statement. A processing delay can leave the original amount showing as due.

Evidence to keep

Retain a clear file showing:

Year-to-date bookkeeping
Management accounts
Sales pipeline or confirmed contract changes
Evidence of lost customers or business closure
Property completion statements or tenancy changes
Rental statements
Dividend plans and vouchers
PAYE forecasts
CIS deduction statements
Pension contribution evidence
Loss calculations
The provisional tax computation
Assumptions used for the remaining months
The submitted claim and confirmation
Subsequent forecast updates

The records should demonstrate that the claim was reasonable when made, even if the final result later differs.

A 15-step action plan

Confirm which year's payments are being reduced.
Check the original payment amounts and due dates.
Update bookkeeping to the latest available date.
Forecast income to 5 April.
Estimate taxable business and property profit.
Include employment, dividends and other personal income.
Apply allowances, losses and reliefs correctly.
Calculate Income Tax and Class 4 National Insurance.
Deduct expected PAYE, CIS and other tax at source.
Exclude Capital Gains Tax and student loans from the payment-on-account figure.
Add a sensible margin for uncertainty.
Divide the revised relevant amount into two instalments.
Submit the claim online or using SA303.
Check the HMRC statement and payment instructions.
Review the estimate whenever circumstances change.

Frequently asked questions

Can I reduce payments on account because my income has fallen?

Yes, if the fall means the relevant Income Tax and Class 4 National Insurance liability is reasonably expected to be lower than the amount on which the original payments were based.

Can I reduce them because I cannot afford to pay?

No. Inability to pay does not reduce the tax liability. Consider a payment arrangement or contact HMRC before the deadline.

How much can I reduce them by?

Reduce them to half of the reasonably estimated relevant liability for the year, subject to the detailed calculation and amounts already paid.

Can I reduce payments to nil?

Yes, if a supportable forecast shows that no relevant payment-on-account liability will arise. Do not select nil merely because income has reduced substantially.

Can my accountant submit the claim?

Yes, an authorised agent can make a claim on the taxpayer's behalf and prepare the supporting forecast.

Do I need to wait until I file the next tax return?

No. A claim can be made during the year using the online service or form SA303. It can also be made through the return that creates the payments.

What is form SA303?

It is HMRC's form for claiming to reduce Self Assessment payments on account. It can be completed for printing and posting where the online service is not used.

What reason should I give?

State the factual reason why the relevant liability is expected to be lower, supported by figures where possible. Examples include lower taxable business profit, a property sale, business cessation, increased CIS deductions or higher pension relief.

What is the deadline for a 2026/27 reduction?

The normal claim deadline is 31 January 2028, which is 31 January after the end of the 2026/27 tax year.

Can I claim after paying the January instalment?

Yes. If the reduction creates an overpayment, it can remain as credit or a repayment can be requested, subject to HMRC set-off rules and checks.

Can I reduce only the July payment?

A claim revises the annual payment-on-account position. If January has already been paid, processing the claim may create credit while reducing the July amount. Check the updated statement rather than informally changing one instalment.

Will HMRC charge interest if the estimate is wrong?

If the final liability is higher than the reduced payments, interest can be charged on the shortfall from the original due dates.

Will HMRC charge a penalty?

A reasonable forecast that later proves inaccurate normally creates an interest issue rather than an automatic penalty. Penalties can be considered for fraudulent or negligent claims, particularly gross or persistent abuse.

What if income rises after I reduce the payments?

Update the forecast, increase the payments and pay the difference promptly to limit interest.

Does lower turnover automatically justify a reduction?

No. Tax is based on taxable profit and total personal income. Lower turnover may not mean lower profit.

Does buying equipment reduce the payments?

Possibly, if valid capital allowances reduce the forecast taxable profit. The full cash price is not always deducted directly, so calculate the tax treatment first.

Does paying more into a pension help?

Qualifying personal pension contributions can reduce adjusted net income or extend tax bands and may lower the liability. The treatment depends on the pension method, contribution limits and the taxpayer's circumstances.

Does a property sale cancel rental payments on account?

It may reduce future property income, but rent earned before the sale and other income must still be included. Capital Gains Tax on the sale is separate.

Do CIS deductions reduce payments on account?

They can. CIS deductions are tax paid at source and should be included in the forecast. Use supported deductions expected for the whole year.

Will reducing payments affect my tax return?

The return still reports the actual income and liability. The reduced instalments are credited against that calculation, and any difference becomes a balancing payment or repayment.

Is the January tax bill reduced automatically when income falls?

No. HMRC does not know the final current-year result until it is reported. Submit a valid claim if the original instalments are too high.

Can I use a rough estimate?

Some forecasting is unavoidable, but the estimate should be reasonable and based on evidence. A full provisional tax calculation is safer than choosing a percentage reduction.

What if I have already overpaid?

Submit the reduction claim. Once processed, the credit can usually remain against future liabilities or be requested as a repayment. HMRC may use it against amounts due soon or other debts.

Reducing payments is a forecasting exercise

A payment-on-account claim is most effective when it forms part of wider tax planning.

The taxpayer should know:

Why income has fallen
Whether the fall is temporary or permanent
How taxable profit differs from cashflow
Which reliefs are available
How much tax is being collected elsewhere
What liabilities are excluded from payments on account
How the forecast will be monitored

The objective is not to pay the smallest possible amount now. It is to pay a reasonable amount at the correct time while avoiding a large unnecessary overpayment or an interest-bearing shortfall.

Speak to PR Accountants Ltd

PR Accountants Ltd helps sole traders, landlords, construction subcontractors, directors and other Self Assessment taxpayers review and reduce payments on account where the figures support a claim.

Our services include:

Updating bookkeeping and management figures
Preparing current-year profit forecasts
Estimating Income Tax and Class 4 National Insurance
Reviewing CIS and PAYE deductions
Calculating property income
Reviewing losses, pension contributions and other reliefs
Preparing payment-on-account reduction claims
Submitting claims through the appropriate HMRC route
Reviewing overpayments and refund requests
Monitoring revised estimates during the year
Preparing and filing Self Assessment tax returns
Tax reserve and cashflow planning
Time to Pay support where the liability has not fallen

If your income has fallen, contact us before paying the next instalment. A timely forecast can prevent unnecessary tax leaving the business while keeping the claim reasonable and properly supported.

PR Accountants Ltd
Email: info@praccounting.co.uk
Landline: 0330 043 0792
Mobile and WhatsApp: 07946 617369
Website: www.praccounting.co.uk

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Official guidance

This article provides general information based on tax rules and HMRC guidance available at the date of publication. It does not constitute personalised tax, accounting, legal or financial advice. Payment-on-account claims should be based on the taxpayer's complete circumstances and a reasonable estimate of the relevant liability. Tax rules, thresholds, interest rates and HMRC processes can change.