Self Assessment Payment on Account: How to Reduce It Before 31 July

Your clients' second payment on account for 2025/26 falls due at midnight on 31 July 2026. It's an advance instalment toward a tax year nobody has added up yet: half of last year's bill, paid before this year's return even exists. If a client has earned less this year, you can ask HMRC to bring the payment down. Cut it too far, though, and HMRC charges interest on the shortfall. Here's how to make that call before the deadline.

What is a payment on account, and why is one due on 31 July?

It's an advance instalment toward a client's Self Assessment bill. HMRC collects the tax in two halves rather than one lump: the first by 31 January, the second by 31 July. The payment landing on 31 July 2026 is the second payment on account for the 2025/26 tax year (the year ended 5 April 2026). HMRC works it out from the client's 2024/25 liability, not from anything they've actually earned since.

That timing is the whole problem. You're paying tax for a year that has only just ended, on last year's numbers, months before the return is filed. When a client's income has dropped, the July payment can dwarf what they'll eventually owe. HMRC's guidance is clear that the two payments "are due by midnight on 31 January and 31 July."

Who actually has to make payments on account?

Not every client. HMRC frames it as two let-outs: a client does not have to make payments on account if their last Self Assessment bill was under £1,000, or if they paid more than 80% of last year's tax at source (through PAYE, say). Flip that round and a client is in scope when both of these hold:

• their last bill was more than £1,000, and
• less than 80% of their tax was collected at source.

The typical candidate, then, is a sole trader or landlord whose income mostly sits outside PAYE. A director on a small salary with large dividends often qualifies too.

How much is each payment?

Each payment on account is 50% of the previous year's tax bill. Two payments of 50% are meant to pre-fund the whole of the new year's liability, on the assumption that income stays roughly flat.

Worth flagging one caveat to clients. The "half" is half of the income tax and Class 4 National Insurance that wasn't collected at source. It does not cover student or postgraduate loan repayments or Capital Gains Tax, which fall due in full with the balancing payment on 31 January. That's why the July payment never quite clears the slate, and why HMRC's own wording hedges with "usually half".

When does it make sense to reduce a payment on account?

Reducing is for one situation only: you have good reason to expect the client's current-year bill to come in lower than last year's. The common triggers will be familiar across any client book:

• a sole trader who lost a major customer or wound down a side business;
• a landlord who sold a property and no longer has that rental income;
• a one-off spike last year — a big project, a bonus — that will not repeat;
• a client who has gone back into full-time PAYE employment.

If income is steady or rising, leave the payment alone. A reduction isn't a way to defer tax. It's an adjustment to reflect a genuinely smaller bill.

How to reduce a payment on account

There are two official routes, both confirmed on the GOV.UK payments on account page:

• Online: sign in to the client's HMRC online Self Assessment account and select "Reduce payments on account".
• By post: submit form SA303, stating the amount you expect the client to owe.

Either way, you're telling HMRC the new figure you expect, not just asking for a pause. Do it before 31 July so the lower amount applies to the payment actually due. And keep your working on file, the calculation that justifies the reduced figure, in case HMRC comes asking.

What happens if you reduce it too far?

This is where reductions bite. Cut the payment, and if the client's real bill turns out higher than your estimate, HMRC charges interest on the difference. That interest runs from the original due dates, 31 January and 31 July, not from the day you eventually put it right. GOV.UK states it plainly: "if you reduce your payments on account and your tax bill is higher than expected, you'll be charged interest on the difference."

The rate isn't trivial, so it matters. HMRC's late-payment interest rate is 7.75% (the rate set from 9 January 2026), and it tracks the Bank of England base rate plus 4%, so it moves whenever the base rate does. Check the current figure before you advise a client. The practical rule is simple. Reduce to a realistic estimate, not an optimistic one. An over-aggressive reduction that unwinds in January costs interest for the privilege.

Payment on account vs balancing payment

Clients find it easier when you lay out the full cycle. The two payments on account pre-fund the year. The balancing payment on the following 31 January then settles whatever is left once the actual return is filed, alongside the first payment on account for the next year.

That January reckoning is the one that catches clients out. The balancing payment and the next year's first instalment land on the same day, so a client who reduced too far in July can face an unexpectedly large January bill. GOV.UK confirms the 31 January charge covers "any tax you owe for the previous tax year (known as a balancing payment) and your first payment on account."

Does a late payment on account trigger a penalty?

No, and this is the point most people get wrong. A late or under-reduced payment on account attracts interest only. The fixed 5% late-payment penalties (charged at 30 days, 6 months and 12 months) and the £100 late-filing penalty apply to the balancing payment and the return, not to a payment on account.

So here's the accurate picture. Miss or under-reduce a July payment and the client pays interest from the due date, nothing more. The 5% penalty only enters the frame if the shortfall is still unpaid 30 days after the 31 January balancing-payment date. Tell a client they'll be "fined 5%" for a late July payment and you're wrong, and it's the kind of detail that erodes trust the moment they read the GOV.UK page for themselves.

A worked example

Hypothetical, for illustration. A sole trader's 2024/25 bill was £8,000, so each payment on account is £4,000. In 2025/26 she lost her largest client and expects to owe about £5,000. Left alone, she pays £4,000 in January and £4,000 in July: £8,000 against a £5,000 liability, with the £3,000 overpayment refunded after she files.

Reduce her payments on account to £2,500 each and she pays roughly what she owes, keeping £3,000 in her own account through the year. But if she's misjudged it and the real bill is £6,000, HMRC charges interest on the £1,000 shortfall from the original due dates. The judgement call is whether your estimate is solid enough to be worth that risk.

The takeaway for the 31 July deadline

Run a quick review of every payment-on-account client before 31 July. For each one, ask a single question: is this year's income clearly lower than last year's? Where the answer is a confident yes, file the reduction online or on an SA303 with a defensible figure. Where it's no, or you're unsure, let the payment stand. The interest cost of guessing wrong outweighs the cash-flow benefit of an optimistic cut.

This is general information, not advice — check the GOV.UK guidance, or a client's specific position with a qualified accountant, before acting. For the full year's dates, see the 2026 deadline calendar; for how the Self Assessment regime is changing, see MTD for ITSA: 2026 rollout.

---

Sources
GOV.UK: https://www.gov.uk/understand-self-assessment-bill/payments-on-account
GOV.UK: https://www.gov.uk/government/publications/rates-and-allowances-hmrc-interest-rates-for-late-and-early-payments/rates-and-allowances-hmrc-interest-rates