How to Reduce Your Self Assessment Payments on Account (Without Risking Penalties)

This guidance is for Self Assessment taxpayers who are considering whether they can safely reduce their payments on account because they expect their tax bill for the current year to be lower.

Reducing payments on account can help with cash flow, but it also carries risk. If your estimate is too low, HMRC may charge interest and, in some cases, penalties. This page explains when reducing payments on account may be appropriate — and when caution is needed, including for taxpayers using a Self Assessment payment service in London.

Understanding Self Assessment Payments on Account and When They Can Be Reduced

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 e.g., for 2022-23 the first payment on account was due on 31 January 2023.
• 31 July following the tax year e.g., for 2022-23 the second payment on account was due on 31 July 2023.

These payments on account are based on 50% 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.

There is no requirement to make 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.

The payments are based on 50% of your previous year’s net income tax liability. 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.

HMRC’s internal manuals are clear that a reason for requesting a reduction in the payments on account must be given. A request without a reason is not a valid claim.

There are no restrictions on the number of claims to adjust payments on account a taxpayer or agent can make. However, there is a time limit which means that the claim must be received before the 31 January following the tax year in question, for example by 31 January 2024 for the year 2022-23.

There is no requirement to notify HMRC if your taxable profits have increased year on year.

Risks of Reducing Payments on Account Incorrectly

If you reduce your payments on account and your final tax liability turns out to be higher than expected, HMRC will normally charge interest on the underpaid amount from the original payment due dates.

Where a reduction is considered unreasonable or not supported by your actual tax position, HMRC may also apply penalties. In addition, an underestimated reduction can result in a larger balancing payment becoming due later, which may create cash flow pressure.

In Practice – Where Reductions Often Go Wrong

In practice, we often see taxpayers reduce payments on account based on optimistic assumptions about future income. Common issues include income rebounding later in the year or taxable items being overlooked, which can leave taxpayers facing unexpected interest charges when the final figures are calculated.

For tailored support, speak to experienced accountants in Farringdon, supporting Self Assessment taxpayers across nearby areas such as Clerkenwell and Barbican. At CIGMA Accounting, we regularly advise on payments on account and cash-flow planning, helping you assess whether a reduction is appropriate and how to approach HMRC correctly.

Find out more about our accounting support in London

HMRC’s official guidance explains when you can claim to reduce payments on account and the conditions that apply. You can read this guidance on GOV.UK.

Review Whether Your Payments on Account Can Be Safely Reduced

Reducing payments on account may be appropriate in some circumstances, but doing so without a clear understanding of your expected tax position can lead to interest or penalties. A short review now can help confirm whether a reduction is justified.