How to reduce payment on account when your income has dropped, the risks of getting it wrong, and the exact steps to claim to reduce for the 2026/27 tax year.
Payment on account is the part of Self Assessment that catches freelancers out more than any other. You file your return, you pay the tax you owe, and then HMRC asks for another 50% on top as an advance on next year. If your income has since dropped, that advance can be painfully more than you will actually owe.
The good news is you do not have to just pay it. You can reduce payment on account when your circumstances have changed, and this is the guide to doing it properly, including the one mistake that turns a smart move into an expensive one.
A quick recap so the rest makes sense. Payment on account is HMRC collecting next year’s tax in advance, in two instalments. Each instalment is normally half of your previous year’s tax bill. The first is due 31 January, the second is due 31 July. If you want the full mechanics, our guide on Self Assessment payment on account explained covers how the two instalments are calculated.
Here is the key point. Those instalments are based on last year’s income, not this year’s. HMRC has no way of knowing your income has fallen until you tell them. So if you had a strong year, then a quiet one, you can be asked to pay advance tax on money you are not going to earn.
To reduce payment on account is to formally tell HMRC “my tax bill this year will be lower than last year, so please lower the advance payments to match.” When you do this, both instalments come down to your new estimate.
There are a handful of clear situations where reducing is the right call.
Your income has genuinely dropped. Maybe you lost a big client, went part-time, took parental leave, or moved from freelance to a mostly employed role where tax is taken through PAYE. If this year’s profit will be meaningfully lower, your advance payments should be too.
You have started paying more tax at source. If you took a PAYE job alongside your freelance work, more of your tax is now collected through your salary. Your Self Assessment liability, and therefore the correct payment on account, falls.
Your allowable expenses have gone up. A big equipment purchase, a new work vehicle, or higher costs this year all reduce your taxable profit, which reduces the tax due, which justifies a lower advance.
You made a one-off gain last year. If last year’s tax bill was inflated by a windfall, a bumper project, or a capital item that will not repeat, your baseline was artificially high. This year will be more normal, so the advance based on last year is too big.
In all of these, reducing payment on account keeps money in your business now rather than parking it with HMRC as an interest-free loan until the following January.
Reducing is not free of risk, and there are times to leave it alone.
If this year is shaping up similar to or better than last year, do not reduce. You will only owe the money anyway, and reducing then underpaying triggers interest.
If you are simply short of cash but your income has not actually fallen, reducing is the wrong tool. You would be understating a bill you genuinely owe. If cash flow is the problem, a Time to Pay arrangement with HMRC is the proper route, not a false reduction.
If you are not sure yet, wait. You do not have to decide the moment you file. You can claim to reduce right up to 31 January after the tax year ends, so you can hold off until you have a clearer picture of the year.
There are two ways to make the claim: online, or by form.
The online route is quickest. Log in to your HMRC online account and go to your Self Assessment. Find the payments on account for the relevant tax year. There is an option to reduce them. You enter your revised estimate of the total tax you expect to owe, and HMRC recalculates each instalment to half of that figure. Confirm, and the reduced amounts apply.
The paper route uses form SA303, a claim to reduce payments on account. You can download it from gov.uk, fill in your revised estimate, and post it to HMRC. It does the same job as the online claim, just slower. Most people use the online option now.
Whichever route you choose, you are asked for an estimate of your total tax due for the year, not the instalment amount. HMRC halves it for you across the two payments.
Worked example. Last year your tax bill was £8,000, so HMRC set two payments on account of £4,000 each, due 31 January and 31 July. This year you expect to owe about £5,000 because you dropped a major client. You make a claim to reduce, estimating £5,000 for the year. HMRC recalculates the payments on account to £2,500 each. If you had already paid the January £4,000, your July payment is adjusted so your total advance matches the new estimate, and any overpayment can be set against what you owe or refunded.
Timing matters. If you want the 31 July instalment reduced, make the claim before that date. If you claim after paying, you can still reduce for the year, but you will have to wait to get the overpaid amount back.
Here is the trap. Reducing payment on account is an estimate, and HMRC checks it against what you actually owe when you file next year’s return.
If you reduce too far, so that your real tax bill comes in higher than your estimate, HMRC charges interest on the shortfall, backdated to the original due dates of 31 January and 31 July. The current late-payment interest rate is not trivial, so a big over-reduction can cost real money. In effect, you pay the tax you always owed, plus interest for having held onto it.
So the golden rule is: estimate honestly, not hopefully. It is fine to reduce to a realistic figure for a genuinely quieter year. It is not fine to reduce to zero because you would rather not pay right now. If in doubt, reduce a little less aggressively than your best guess, leaving a small buffer. Underestimating your income by a bit and paying slightly more now is cheaper than overestimating your reduction and paying interest later.
The payment on account system itself is unchanged for the 2026/27 tax year. The 50% instalments, the 31 January and 31 July dates, the SA303 claim, and the option to reduce online all work exactly as before. The £1,000 threshold below which payments on account are not required, and the rule that they do not apply if more than 80% of your tax was collected at source, both still stand.
What is worth watching is the late-payment interest rate, which HMRC sets in line with the Bank of England base rate. Because interest is what makes an over-reduction expensive, keep an eye on the current rate on gov.uk before you decide how far to reduce. The mechanism has not changed, but the cost of getting your estimate wrong moves with the base rate.
Remember too that reducing only delays or lowers an advance, it does not remove any tax you genuinely owe. If your income holds up, the balance still lands on 31 January. For the practical steps on paying the July instalment if you decide not to reduce, see our guide on the 31 July second payment on account.
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Yes. If you expect your tax bill for the current year to be lower than last year, you can make a claim to reduce your payments on account. You can do it through your HMRC online account or by submitting form SA303. HMRC then lowers both instalments to match your estimate.
If you cut it below what you actually end up owing, HMRC charges interest on the shortfall from the original due dates. So reducing to zero when you still owe tax means you pay the same tax plus interest. Estimate honestly rather than optimistically.
You can claim to reduce payments on account any time up to 31 January after the end of the tax year they relate to. In practice, reduce before the 31 July second instalment if you want that payment lowered, otherwise you pay the full amount and reclaim the difference later.
Log in to your HMRC online Self Assessment account, find the payments on account for the relevant year, and select the option to reduce them. Enter your revised estimate for each instalment. You can also post form SA303 if you prefer not to do it online.
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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 (6 July 2026). Tax rules change. For complex situations, consult a qualified UK accountant or visit gov.uk/income-tax.
