Can I Reduce My Payments on Account?

Jerelyn Aglibao
Jul 11
3 min read

Updated: 4 days ago

For many self-employed individuals and small business owners in the UK, Payments on Account can come as an unwelcome surprise — especially when cash flow is tight. But did you know that in certain circumstances, you may be able to reduce these advance payments?

This article explains what Payments on Account are, when you're eligible to reduce them, and how to do it — all in line with HMRC guidelines.

What Are Payments on Account?

Payments on Account are advance payments towards your next year's Income Tax bill, based on your tax liability from the previous year. These apply mainly to the self-employed or those with untaxed income.

If your Self Assessment tax bill exceeds £1,000 and less than 80% of your tax is collected at source (e.g. through PAYE), HMRC will require you to make two advance payments:

31 January – first payment (50% of last year’s tax bill)
31 July – second payment (remaining 50%)

If your actual tax due for the current year is lower than the previous year, you could be overpaying — unless you take action.

When Can You Reduce Payments on Account?

You may apply to reduce your payments on account if you believe that:

Your income will be lower this year than last year.

Example:
Last tax year, Sophie ran a successful online retail business and made a profit of £60,000. This year, due to supply chain issues and reduced consumer demand, she expects profits to drop to around £30,000. She can apply to reduce her payments on account based on this projected fall in income.
You have increased allowable expenses or reliefs.

Example:
James is a freelance videographer. This year, he invested heavily in new equipment and software for his business, significantly increasing his allowable capital allowances. Although his income remains steady, these expenses will reduce his taxable profit — so he may be eligible to reduce his payments on account.
Your income will fall below the £1,000 threshold that triggers Payments on Account.

Example:
David worked as a consultant last year and owed £2,500 in tax through Self Assessment. This year, he took a full-time job and is now taxed under PAYE. His untaxed income from side work is now only £800 — below the £1,000 threshold. He’s no longer required to make payments on account at all.

This reduction must be based on reasonable grounds. Overestimating the reduction to artificially delay tax payments may lead to interest and penalties.

How to Reduce Your Payments on Account

There are three ways you can request a reduction:

Online via your HMRC Self Assessment account
Through your tax return (use the ‘Reduce payments on account’ section)
By post – using form SA303

You’ll need to provide an estimate of what you think your tax liability will be for the current year. HMRC doesn't ask for detailed evidence upfront, but they may investigate if your estimate appears unreasonable.

What If I Get It Wrong?

If you reduce your payments too much and your actual tax bill is higher, you’ll need to:

Pay the difference by 31 January following the end of the tax year
Pay interest on the underpaid amount, calculated from the original due date

The current late payment interest rate is 8.25% (as of May 2025), as set out by HMRC under the Taxes Management Act 1970.

So while reducing payments on account can ease cash flow, it should not be done speculatively.

Final Thoughts

Reducing your payments on account can provide valuable breathing space, especially in years where income dips or business slows. However, any decision should be backed by realistic estimates and up-to-date records to avoid penalties later.

If you’re unsure whether you're eligible to reduce your payments or if you’d like help submitting the request, feel free to contact us. As always, it’s best to speak with a qualified accountant who understands your situation and can act in your best interest.

Local Support for Small Businesses

If you're based in Leamington Spa or anywhere in UK, our team at Duo Accountants is here to help you stay compliant and stress-free. Whether it’s Self Assessment, tax planning, or dealing with HMRC, we’ve got your back.

Book a call with us today

Let’s ensure you only pay what’s due — and not a penny more.