Reduce Payments on Account Safely: 2026/27 Examples

Self Assessment payments on account are two advance instalments toward the following year’s Income Tax and Class 4 National Insurance. Each is normally 50% of the previous year’s qualifying liability, due on 31 January and 31 July.

This guide focuses on the calculation, worked examples and when to reduce payments safely. It complements our broader guide to how payments on account work.

When payments on account apply

They are normally required unless either:

• the previous year’s relevant Self Assessment liability was less than £1,000; or
• at least 80% of the total tax liability was collected outside Self Assessment, such as through PAYE or deduction at source.

The relevant amount generally includes Income Tax and Class 4 National Insurance still payable through Self Assessment. Capital Gains Tax and student or postgraduate loan repayments are not normally included when calculating the instalments.

Basic calculation

If the relevant 2025/26 liability is £6,000:

• first 2026/27 payment on account: £3,000 due 31 January 2027;
• second 2026/27 payment on account: £3,000 due 31 July 2027.

When the 2026/27 return is filed, those £6,000 of advances are credited against the actual qualifying liability.

Why the first January bill can feel doubled

A new sole trader has a 2025/26 qualifying tax liability of £4,000 and has made no earlier payments. On 31 January 2027 they may owe:

• £4,000 balancing payment for 2025/26; plus
• £2,000 first payment on account for 2026/27.

Total due is £6,000, followed by £2,000 on 31 July 2027. This is not double tax: £4,000 settles the completed year and £4,000 is advanced toward the next year.

Balancing payment example

Suppose the two 2026/27 payments on account total £6,000, but the final qualifying 2026/27 liability is £7,400. A £1,400 balancing payment is due on 31 January 2028. Payments on account for 2027/28 are normally based on the £7,400 amount, so each may be £3,700 unless an exception or reduction applies.

Overpayment example

If the two instalments total £6,000 but the final liability is £4,800, the account has a £1,200 credit. HMRC can repay it or allocate it against another liability. Filing early allows the second instalment to be reviewed before 31 July where the actual result is known.

When a reduction may be reasonable

• profit has fallen;
• the trade or rental business has stopped;
• a one-off income source from the previous year has ended;
• more tax is now collected through PAYE or CIS deductions;
• losses or pension contributions reduce the expected liability;
• the accounting period is shorter or activity is seasonal;
• the previous year included an exceptional taxable receipt.

Estimate the whole tax year, including every untaxed income source. A lower business profit may be offset by higher rent, dividends or savings income.

How to calculate a reduced amount

1. Forecast 2026/27 income and allowable expenses.
2. Estimate allowances, reliefs and loss claims.
3. Calculate Income Tax and Class 4 NIC.
4. Subtract tax expected to be deducted at source.
5. Exclude amounts outside the payment-on-account calculation.
6. Divide the estimated relevant amount into two equal instalments.
7. Retain the forecast and assumptions supporting the claim.

A valid reduction normally changes both instalments equally. Do not reduce only the July amount to reflect a mid-year cash-flow preference.

How to make the claim

You or your agent can normally reduce payments through the HMRC online account, on the Self Assessment return or using HMRC’s claim form. State the revised amount and reason. A claim can also be made after paying an instalment; any resulting credit can be repaid or allocated elsewhere.

Interest risk when reducing too far

If the final relevant liability exceeds the reduced instalments, HMRC charges interest on the shortfall from the original payment due dates. Increasing the instalments later does not erase interest already accrued. An excessive or careless reduction can also create penalty risk in serious cases.

Update the forecast when circumstances improve and make a top-up payment promptly.

Do not confuse three payment tools

A Budget Payment Plan does not reduce the tax calculation. Time to Pay does not alter the underlying liability or necessarily stop interest.

Payments on account and MTD

Quarterly MTD for Income Tax updates do not themselves calculate or replace payments on account. The statutory instalments continue until legislation or the taxpayer’s actual Self Assessment calculation changes them. Use digital records to update the profit forecast during the year.

Review checklist

• check the previous year’s relevant amount;
• apply the £1,000 and 80% exceptions correctly;
• exclude CGT and student-loan amounts from the instalment base;
• forecast all current-year income;
• document any reduction;
• review before both 31 January and 31 July;
• top up promptly if profit recovers;
• reconcile instalments to the final statement.

Official guidance

• GOV.UK: payments on account
• GOV.UK: reading the Self Assessment statement
• HMRC: rules for adjusting payments on account
• HMRC: reviewing the July instalment

This 2026/27 guide is general information. A reduction should be supported by a reasonable full-year tax estimate.