Paid your July payment on account? How to legitimately reduce payments on account next year, from pension timing to expenses, without the interest trap.
If you paid your payment on account on 31 July, you have just handed HMRC a chunk of tax on income you have not earned yet. That is what payments on account are: an advance on next year’s bill, based on the assumption that this year will look like last year.
For a lot of freelancers that assumption is wrong, and the good news is you are not stuck with it. Here is how to reduce payments on account for next year, legitimately, without tripping the interest trap that catches people who get too optimistic.
Once your Self Assessment bill goes over £1,000 and less than 80% of your tax was already collected at source, HMRC asks you to pay next year’s tax in two instalments, each one half of your last completed bill, due on 31 January and 31 July.
So if your 2025/26 tax bill came to £4,000, you pay £2,000 in January and £2,000 in July as advance payments towards 2026/27, on top of any balancing payment for the year just gone. The first year you cross that threshold is brutal, because you effectively pay one and a half years of tax in a single January. After that it settles into a rhythm.
There are genuinely only two levers, and people confuse them constantly.
The first lever is reducing the payment on account itself because you expect next year to be quieter. This is a claim you make to HMRC. It does not change the tax you owe, it just changes the timing of when you pay it.
The second lever is reducing the underlying tax bill, through pension contributions, expenses, and allowances. This is real tax planning. A smaller bill this year means smaller payments on account next year, because each instalment is half of your previous bill. This is the lever worth pulling first, because it saves actual money rather than just moving the date.
Most of this post is about the second lever, because that is where the real gains are.
If you already know 2026/27 will earn less than 2025/26, maybe you lost a big client, took time off, or moved partly to PAYE, you can tell HMRC to lower both instalments. You do this in your HMRC online account under the Self Assessment section, or by filing form SA303 on paper.
Here is what I would check first. Work out a realistic estimate of your total tax and Class 4 National Insurance for the coming year. Reduce the payments to half of that figure, not to zero out of hope. HMRC charges interest on any shortfall from the original due date, so if you cut your payment to £500 and end up owing £2,000, you pay interest on the difference from the day it was originally due.
There is no penalty for an honest estimate that lands slightly low. There is a penalty for deliberately lowballing to delay payment. Keep a short note of how you reached your figure in case anyone ever asks.
You can make this claim before the January payment or the July payment. If you can see the quieter year coming, do it before July so both instalments drop, rather than overpaying in July and waiting for a refund.
A quick worked example. Your 2025/26 bill was £4,000, so HMRC set two payments on account of £2,000 each. You lost your largest client in April and realistically expect your total tax and Class 4 National Insurance for 2026/27 to be nearer £2,600. Half of that is £1,300, so you reduce each instalment from £2,000 to £1,300. You have kept £1,400 in your own account across the year instead of lending it to HMRC, and because your estimate is honest and close, there is no interest to worry about.
This is the big one. A personal pension contribution extends your basic-rate band, which means more of your income is taxed at 20% instead of 40%, and it can pull you back under thresholds like the £50,270 higher-rate line or the £100,000 personal-allowance taper.
Worked example. Say your taxable profit for 2026/27 is heading for £58,000. Without any planning, roughly £7,730 of that sits in the 40% band above £50,270. If you pay £6,000 into a personal pension (which becomes £7,500 gross once the pension provider adds 20% basic-rate relief), your basic-rate band stretches by £7,500. That drags almost all of your higher-rate income back down to 20%, saving you 20 pence in tax on every pound moved across the threshold, plus it grows inside your pension.
A lower final bill this year automatically means lower payments on account next year. The contribution has to actually leave your account inside the tax year to count, so December and January are when a lot of freelancers top up. Do not leave it to the last day.
Underclaiming expenses is the quiet tax leak in most freelance accounts. Every legitimate business cost you leave off your return is profit you pay tax and Class 4 National Insurance on for no reason.
The usual missed ones: a share of home broadband and energy if you work from home (or the flat £6 a week working-from-home allowance if you want to skip the maths), mileage at 45p a mile for the first 10,000 business miles, software subscriptions, professional insurance, accountancy fees, a proportion of your phone bill, and equipment. If you earn under £90,000 and your costs are low, the £1,000 trading allowance might beat itemising, so check both ways.
Every £1,000 of expenses you correctly claim knocks roughly £290 off your bill for a basic-rate taxpayer once you count income tax at 20% and Class 4 NI at the main rate. That flows straight through to smaller payments on account.
If your work lets you influence when you invoice, you have some control over which tax year income lands in. Pushing a late-March invoice into early April moves that income into the next tax year, which can keep this year’s bill, and therefore this year’s payments on account, lower.
Be careful with this one. It only delays tax, it does not remove it, and HMRC does not like arrangements that exist purely to dodge a threshold. But smoothing genuinely lumpy income across two years, so you do not spike into the higher-rate band in one of them, is normal and sensible.
Do not reduce your payment on account just because the amount stings. If your income is steady or rising, the payment is correct, and cutting it only stores up a bigger bill plus interest for January. The interest rate HMRC charges on late tax is not trivial, and it compounds.
Reducing is right when your income has genuinely fallen. Planning the bill down through pensions and expenses is right almost always. Cutting a payment you will actually owe is just borrowing from HMRC at a bad rate.
The mechanics of payments on account have not changed for 2026/27. The £1,000 trigger, the 80%-at-source rule, the 31 January and 31 July dates, and the SA303 route are all the same as last year.
What is worth knowing is that HMRC has continued moving Self Assessment fully into the online account, so the fastest way to reduce a payment, check what you owe, and see your statement is now the app or your online account rather than the phone line. The personal allowance is still £12,570 and the higher-rate threshold is still £50,270, so the pension-contribution maths above holds for the whole 2026/27 year.
If you want to see how a pension contribution or a lower profit figure changes your take-home and your tax for the year, the NetPay app runs the numbers for you, including Class 4 National Insurance and the higher-rate threshold. Free to download.
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Yes. If you genuinely expect your income to be lower next year, you can apply to reduce payments on account through your HMRC online account or by filing form SA303. You can also lower the underlying bill itself by making pension contributions, claiming all your allowable expenses, and keeping your figures accurate. Only reduce a payment if you honestly expect to owe less, because HMRC charges interest on anything you underpay.
Indirectly, yes. Personal pension contributions extend your basic-rate band, which lowers your income tax bill for the year. A lower final bill means lower payments on account the following year, since each payment is half of your previous year's tax. The contribution has to be made in the relevant tax year to count.
If you reduce a payment below what you actually end up owing, HMRC charges interest on the shortfall from the original due date until you pay it. There is no penalty for an honest estimate that turns out slightly low, but a deliberate under-reduction to delay payment can attract penalties as well as interest. Estimate carefully and keep a note of how you worked it out.
You can apply to reduce a payment right up to the 31 January after the tax year ends, and you can do it before either the 31 January or 31 July instalment. The earlier you apply, the sooner your instalment is adjusted, so if you already know this year will be quieter, do it before the July payment rather than after.
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NetPay UK works out your real net pay after tax, NI, pension and salary sacrifice, for hourly, shift and variable-income workers. Free to download.
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A note on financial advice: NetPay UK calculates take-home pay based on official HMRC tax rules. This article reflects rules in force at the time of publication (31 July 2026). Tax rules change. For complex situations, consult a qualified UK accountant or visit gov.uk/income-tax.
