Claims to Reduce Payments on Account

If you’re a self-employed sole trader filing a UK Self Assessment tax return and expect your income tax liability for the current year to be lower than the previous year, this guide explains when you can legitimately ask HMRC to reduce your payments on account — and what can go wrong if you get it wrong.

This topic matters because reducing payments on account can improve cash flow, but if done incorrectly you could face interest charges, penalties, or unexpected liabilities. This overlay sits on top of your existing content — which remains unchanged below.

Understanding Self-Assessment Payments on Account and Reduction Deadlines

Self-assessment taxpayers are usually required to pay their Income Tax liabilities in three instalments each year. The first two payments are due on 31 January during the tax year and 31 July following the tax year.

These payments on account are based on 50% each of the previous year’s net income tax liability. In addition, the third (or only) payment of tax will be due on 31 January following the end of the tax year. If you think that your income for the next tax year will be lower than the previous tax year, you can apply to have your payment on account reduced. This can be done using HMRC’s online service or by completing form SA303.

It is important to note that you do not need to make any payments on account where your net Income Tax liability for the previous tax year is less than £1,000 or if more than 80% of that year’s tax liability has been collected at source.

There are no restrictions on the number of claims to adjust payments on account a taxpayer or agent can make. The payments are based on 50% of your previous year’s net income tax liability. If your liability for 2023-24 is lower than 2022-23 you can ask HMRC to reduce your payment on account. The deadline for making a claim to reduce your payments on account for 2023-24 is 31 January 2025.

If taxable profits have increased there is no requirement to notify HMRC although the final balancing payment will be higher.

Risks and Consequences of Reducing Payments on Account

If you estimate your tax liability too low and reduce your payments on account accordingly, you can face interest charges on any shortfall from the original due dates back to when HMRC expected them. In some cases, HMRC may also charge a penalty where the reduction is considered unreasonable, negligent, or lacks reasonable grounds.

Because payments on account are tied to your anticipated tax bill, reducing them without a reasonable basis can leave you unexpectedly short of funds when your balancing payment and the first payment on account for the next year are due.

In Practice — Common Scenarios We See

In practice, many sole traders seek to reduce their payments on account when trading income falls significantly (for example due to loss of clients or seasonal downturns). However, advisers often see taxpayers underestimating their final tax liability — which commonly leads to interest charges on discrepancies and, in select cases, HMRC issuing enquiries where the reduction appeared unsupported by evidence.

If you’re considering whether reducing your payments on account is appropriate and want to manage the risks carefully, experienced accountants in Hammersmith support taxpayers across nearby areas such as Brook Green and Ravenscourt Park. At CIGMA Accounting, our team can help you stay compliant with HMRC rules and review whether a reduction makes sense for your circumstances before any claim is made.

Find out more about our accounting support in London

For the official HMRC guidance on how to make a claim to reduce payments on account and the conditions that must be met (including deadlines and valid reasons), see HMRC’s Claim to Reduce Payments on Account guidance.

Review Whether Your Payments on Account Estimate Is Reasonable

Reducing your payments on account might seem beneficial for cash flow, but if your liability turns out higher than estimated you could be charged interest and face penalties. It’s important to review your projected income and tax liability before making a claim to reduce.