Claim to Reduce Payments on Account: HMRC Rules, Deadlines and SA303 Form

A claim to reduce payments on account allows a Self Assessment taxpayer to lower their advance Income Tax payments when they reasonably expect their current-year tax liability to be less than the amount calculated by HMRC. It may be relevant to sole traders, landlords, business partners and individuals receiving other income that is not fully taxed at source.

Reducing the instalments can protect cash flow where profits or taxable income have genuinely fallen. However, the claim must be supported by a reasonable tax estimate. When payments are reduced too far, HMRC can charge interest on the shortfall from the original January and July due dates. A fraudulent or negligent claim may also lead to a penalty.

This guide explains when a reduction is permitted, how to estimate the revised amount, how to apply online or through the SA303 form, the relevant 2026 and 2027 deadlines, and what happens if your final tax liability is higher than expected. For a broader understanding of how payments on account fit into the UK personal tax system as a whole, our ultimate guide to personal tax in the UK covers income tax, reliefs and reporting obligations in more depth.

What Are HMRC Payments on Account?

Self Assessment payments on account are advance payments towards the Income Tax and, where applicable, Class 4 National Insurance that you are expected to owe through Self Assessment for the current tax year.

They are not an additional tax or penalty. The payments are credited against your final liability when the relevant Self Assessment return is completed.

Two payments are normally required:

• the first payment on account is due by midnight on 31 January and
• the second payment on account is due by midnight on 31 July.

Each payment is normally equal to 50% of the previous tax year’s relevant Self Assessment liability.

What Do Payments on Account Cover?

The calculation normally includes:

• Income Tax payable through Self Assessment and
• Class 4 National Insurance contributions for self-employed taxpayers.

Payments on account do not normally include:

• Capital Gains Tax
• student loan repayments or
• certain other amounts collected as part of the final Self Assessment bill.

These excluded amounts can still increase the balancing payment due on the following 31 January.

Who Normally Has to Make Payments on Account?

You will generally have to make payments on account when:

• your relevant Self Assessment liability for the previous tax year was £1,000 or more and
• less than 80% of your total tax liability was collected at source, such as through PAYE.

The rules commonly affect:

• self-employed sole traders
• landlords with taxable property profits
• partners in business partnerships
• individuals receiving substantial dividends or savings income
• taxpayers with foreign income and
• people with several sources of income that are not fully taxed before payment.

When Payments on Account Are Not Required

You will not normally be required to make payments on account if either of the following applies:

• your relevant Self Assessment liability for the previous year was less than £1,000 or
• at least 80% of your total tax liability was collected at source.

The exemption applies where the relevant liability is below £1,000. A liability of exactly £1,000 may therefore generate two £500 instalments unless the 80% tax-at-source condition applies.

When Can You Claim to Reduce Payments on Account?

You can make a claim to reduce payments on account when you reasonably believe that your current-year Self Assessment liability will be lower than the amount used by HMRC to calculate the instalments.

A reduction may be appropriate where:

• your self-employed profits have fallen
• your rental income or taxable property profits have decreased
• you stopped trading during the tax year
• you sold a rental property or stopped letting it
• your allowable business expenses increased
• you are entitled to additional tax relief
• a source of taxable income ended
• more of your income is being taxed through PAYE
• more tax is being deducted at source or
• you have losses that can legitimately reduce the expected liability.

The reduction must be based on your expected tax liability, not simply on a desire to delay payment or improve short-term cash flow.

Lower Turnover Does Not Automatically Mean Lower Tax

A reduction should not be based solely on a fall in business turnover. Income Tax for a sole trader is generally calculated using taxable profit rather than gross sales.

For example, turnover may fall by 20%, but taxable profit may fall by only 5% if business expenses also decrease. Your calculation should therefore consider income, allowable expenses, reliefs and tax already deducted.

Current Payments on Account Deadlines

As of the 2026/27 tax year, the relevant Self Assessment payment cycle includes the following dates:

The payment due on 31 July 2026 is normally based on the relevant 2024/25 Self Assessment liability and is credited towards the final 2025/26 bill.

What Is the Claim Deadline?

A claim must generally be made by 31 January following the end of the tax year to which the payments relate.

• A claim concerning 2025/26 payments on account must generally be made by 31 January 2027.
• A claim concerning 2026/27 payments on account must generally be made by 31 January 2028.

However, a taxpayer who wants to reduce the amount physically paid on 31 July should make the claim before that payment deadline. Acting early provides time to prepare a reasonable estimate and check that HMRC has updated the Self Assessment account.

How HMRC Calculates the Original Payments

HMRC normally calculates each instalment as 50% of the previous tax year’s relevant Income Tax and Class 4 National Insurance liability after taking account of tax deducted at source.

The basic calculation is:

Previous year’s relevant Self Assessment liability ÷ 2 = each payment on account

Example of the Standard Calculation

Suppose your relevant 2024/25 Self Assessment liability was £8,000.

If your final 2025/26 qualifying liability is £8,000, the two instalments should cover it. If it is higher, the difference will normally be payable as a balancing payment on 31 January 2027. If it is lower, the account should show an overpayment.

How to Calculate a Payments on Account Reduction

A payments on account reduction should be based on a reasonable estimate of your final current-year liability.

Your calculation should normally consider:

• expected self-employment profits
• taxable rental profits
• employment and pension income
• dividend and savings income
• foreign and other taxable income
• allowable business and property expenses
• available losses and tax reliefs
• Income Tax rates and allowances
• Class 4 National Insurance where applicable and
• PAYE and other tax already deducted at source.

Capital Gains Tax and student loan repayments should not normally be included in the revised payments-on-account figure. They may still form part of the final balancing payment.

Worked Example of a Reduction Claim

Assume your relevant Self Assessment liability for 2024/25 was £10,000. HMRC would normally request:

• £5,000 on 31 January 2026; and
• £5,000 on 31 July 2026.

Your updated accounts indicate that your relevant 2025/26 liability will be approximately £6,000. The revised instalments would therefore be £3,000 each.

If you already paid £5,000 in January, the reduction may create a £2,000 credit. Depending on your Self Assessment account, the credit may be set against the July instalment, retained against another liability or repaid.

How to Submit a Claim to Reduce Payments on Account

You can apply through your HMRC online account, by submitting the SA303 form, or through an authorised tax agent.

Claim Online Through Your HMRC Account

1. Sign in to your HMRC online account.
2. Open the Self Assessment section.
3. Select the option to view your latest return or statement.
4. Select “Reduce payments on account”.
5. Enter the revised amount you expect to owe.
6. Explain the grounds for the reduction.
7. Submit the claim and check that your statement updates.

An online claim is normally the quickest way to change the instalments. Keep a copy of the calculation supporting the revised figure.

Apply Using the SA303 Form

You can use form SA303 when you need or prefer to make the claim by post. The form asks for:

• your personal and Self Assessment details
• the tax year concerned
• the reduced amount you expect to pay and
• the grounds for believing that your liability will be lower.

Postal processing can take longer. Submit the form well before the relevant January or July payment deadline where possible.

Ask an Authorised Tax Agent to Make the Claim

An accountant or tax adviser registered as your authorised Self Assessment agent can calculate and submit the claim on your behalf.

The agent should have sufficient information to prepare a reasonable estimate. Discussing a fall in profits with your accountant does not automatically change the amount shown by HMRC; the reduction must actually be submitted and processed.

What Grounds Should Be Included in the Claim?

A valid claim must state why you believe your current-year liability will be lower than the amount produced by the normal payments-on-account calculation.

Suitable explanations may include:

• “Self-employment profits are expected to be lower because the business ceased trading during the year.”
• “Rental profits have decreased because the property was vacant for part of the tax year.”
• “More of the taxpayer’s income is now subject to PAYE.”
• “Expected taxable profit is lower due to reduced trading income and higher allowable expenditure.”
• “A source of untaxed income received in the previous year will not recur.”

The explanation should be specific to your circumstances. A statement that you simply cannot afford the payment is not, by itself, a valid basis for reducing it.

Can You Reduce Payments on Account to Nil?

You can reduce both instalments to nil if you reasonably expect that no relevant Self Assessment liability will arise for the year.

This may be appropriate where:

• you stopped trading and have no other relevant untaxed income
• your business is expected to make an allowable loss
• all relevant income is now fully taxed through PAYE or
• available reliefs are expected to eliminate the relevant liability.

A nil claim should be supported by actual figures or a credible forecast. If a liability later arises, interest may be charged on the payments that should have been made.

Can You Change a Claim More Than Once?

There is no fixed limit on the number of genuine adjustments a taxpayer or authorised agent can make.

You may revise a claim where:

• your income falls further than originally expected
• your profits recover after an earlier reduction
• new information changes the estimated tax calculation
• additional income becomes likely or
• the original estimate contained an error.

If later figures indicate that the reduction was too high, increase the payments and pay the additional amount promptly. This can limit the interest that continues to accrue.

What Happens If You Reduce Payments on Account Too Far?

If your completed tax return shows that the correct payments on account should have been higher than the reduced amounts, HMRC can charge late payment interest on the shortfall.

The interest is generally calculated from the original due date of each instalment, not from the date on which you complete the tax return.

Example of Interest Following an Excessive Reduction

Suppose the original payments on account were £4,000 each. You reduced them to £2,000 each, but your completed tax return shows that the correct amount should have been £3,500 per instalment.

The underpayments are:

• £1,500 on the first payment on account and
• £1,500 on the second payment on account.

HMRC may charge interest on the first £1,500 from the original 31 January deadline and on the second £1,500 from the original 31 July deadline.

This can happen even though HMRC initially processed the reduction and displayed the lower amounts on your account.

Can HMRC Charge a Penalty for an Incorrect Reduction?

An ordinary forecasting error does not automatically result in a penalty. HMRC’s guidance indicates that interest will normally address the deferred tax where an accurate Self Assessment return is ultimately submitted.

However, a penalty may be considered where the claim was made fraudulently or negligently. This could include a claim made without reasonable grounds, persistent abuse of the reduction process or knowingly providing an unrealistic figure.

To reduce the risk of a dispute, retain:

• the calculation used to estimate the liability
• management accounts or bookkeeping reports
• details of income expected during the year
• evidence of changed business or rental circumstances
• details of tax deducted at source and
• notes explaining the assumptions used.

Is a Reduction Claim the Same as a Payment Arrangement?

No. A reduction claim and a Time to Pay arrangement address different situations.

Do not use a reduction claim simply because you cannot afford the instalment. First establish whether the expected liability is genuinely lower. If the tax remains due, contact HMRC about payment support instead. If you’re struggling to fund your July tax payment even after checking your figures, it’s worth reviewing the payment support options available rather than submitting an unsupported reduction.

What If Your Profits or Income Increase?

You do not normally have to ask HMRC to increase the original payments on account merely because your current-year income is higher than the previous year.

The difference will generally become payable as a balancing payment after the tax return is completed.

However, you should review and increase the instalments if you previously submitted a reduction claim and later information shows that the reduced figure is too low.

Example of a Higher Balancing Payment

Suppose you paid two instalments of £3,000, providing £6,000 towards your current-year liability. Your completed tax return shows a relevant liability of £9,000.

The additional £3,000 will normally be due as a balancing payment on the following 31 January. You may also have to pay the first instalment towards the next tax year on the same date.

This combination can create a substantial January bill, so higher profits should be reflected in your tax and cash-flow planning even where no immediate notification is required. This is exactly why you should maintain a tax reserve throughout the year, rather than only saving to pay tax once a balancing payment is already close to falling due.

Should You File Your Tax Return Before Reducing the July Payment?

Where all the necessary figures are available, submitting the tax return before the 31 July deadline may be more reliable than making a claim based on an estimate.

Early filing can:

• confirm the actual liability for the completed tax year
• automatically recalculate the payments on account
• identify an overpayment sooner
• show the balancing payment due the following January and
• provide more time to prepare for future liabilities.

Filing a return early does not normally bring the statutory payment deadline forward.

How Making Tax Digital Affects Reduction Claims

Making Tax Digital for Income Tax began applying from 6 April 2026 to qualifying sole traders and landlords within the first mandatory phase.

MTD requires affected taxpayers to maintain digital records and submit quarterly updates using compatible software. It does not currently replace the payments-on-account system.

A taxpayer within MTD may therefore still need to:

• make payments on account on 31 January and 31 July
• submit a reduction claim where the expected liability is lower
• pay a balancing amount following the year-end calculation and
• meet the separate MTD digital reporting requirements.

Quarterly MTD updates are not quarterly Income Tax bills. They may, however, provide more current financial information that can support a reasonable payments-on-account estimate.

Common Mistakes When Making a Reduction Claim

Using Turnover Instead of Taxable Profit

For a sole trader, the tax calculation is generally based on taxable profit. A reduction should not be calculated by applying the percentage fall in turnover directly to the previous tax bill.

Ignoring Other Sources of Income

Reduced self-employment profits may be offset by higher rental income, dividends, savings interest, pension income or employment income.

Forgetting Class 4 National Insurance

The estimate should include Class 4 National Insurance where it applies. Leaving it out can cause the revised instalments to be too low.

Including Capital Gains Tax

Capital Gains Tax does not normally form part of payments on account. It may still be due as part of the final January payment.

Reducing the Instalments Without Records

HMRC may ask how the figure was calculated. Up-to-date records provide evidence that the claim was based on reasonable grounds.

Failing to Review the Claim

A reasonable estimate can become inaccurate when circumstances change. Review the claim before each payment deadline and update it where necessary.

Assuming HMRC’s Acceptance Confirms the Figure

HMRC may process the claim without verifying your forecast. You remain responsible for the accuracy and reasonableness of the reduced amount.

Submitting the SA303 Form Too Late

A postal claim may not be processed before the payment deadline. Submit it early and check your Self Assessment statement before paying a reduced amount.

Checklist Before You Submit the Claim

Before applying, confirm that you have:

1. identified the correct tax year
2. checked which January and July instalments are being reduced
3. updated your business or rental records
4. estimated income from all taxable sources
5. calculated allowable expenses and reliefs
6. included Class 4 National Insurance where relevant
7. deducted PAYE and other tax collected at source
8. excluded Capital Gains Tax and student loan repayments from the instalment calculation
9. documented the assumptions supporting your estimate
10. provided clear grounds for the claim and
11. retained sufficient funds for any balancing payment.

Claim to Reduce Payments on Account Case Study

Daniel, a self-employed electrician, visited our Fulham office after receiving his Self Assessment statement showing another payment on account due. His workload had fallen significantly during the year, and he believed his final tax bill would be much lower. However, he was unsure whether he could claim to reduce payments on account or if he simply had to pay the amount HMRC had calculated.

After reviewing his bookkeeping records and estimated taxable profit, we explained that HMRC allows taxpayers to claim to reduce payments on account when they have reasonable grounds to expect their current year’s tax liability to be lower than the previous year’s. We also discussed the importance of preparing a realistic estimate rather than reducing the payment based solely on cash-flow concerns.

During our conversation, Daniel asked whether he should submit the SA303 form or make the adjustment online. We explained that both options are available, but whichever method is used, the calculation should be supported by accurate records and reviewed if business conditions change later in the tax year. Updating a claim promptly can help minimise interest if profits recover unexpectedly.

By the end of the meeting, Daniel understood that a claim to reduce payments on account is intended for genuine changes in taxable income rather than delaying tax payments. Keeping accurate financial records throughout the year and regularly reviewing expected profits makes it much easier to submit a well-supported claim and avoid unnecessary HMRC interest charges.

Make a Confident Claim to Reduce Payments on Account With Cigma Accounting in London

Making a Claim to reduce payments on account can help if you expect your current year’s tax liability to be lower than the previous year’s. Cigma Accounting supports clients across the Wimbledon, including individuals and businesses in Merton Park and Lower Morden, helping taxpayers assess whether a reduction claim is appropriate and ensuring it is submitted accurately to HMRC.

Before requesting to reduce payments on account, it’s important to understand how HMRC payments on account are calculated and whether your expected income justifies a payments on account reduction. If a claim is needed, completing the SA303 form correctly and providing a realistic estimate of your tax liability can help avoid additional interest charges if your payments are reduced too much.