Many individuals and business owners in the UK pay their tax under the Self-Assessment system, which often involves two payments on account due each year – the first in January and the second in July. These advance payments are calculated based on your previous year’s tax bill. But what if your income has fallen and your tax liability for the current year is likely to be lower?
In that case, it may be possible to reduce the July 2025 payment, helping ease cash flow pressures or avoid overpaying tax unnecessarily. Below we explain when and how this can be done.
Understanding payments on account
Payments on account are advance payments towards your next Self-Assessment bill. They are usually required if your last tax bill was over £1,000 and less than 80% of the tax owed was collected through PAYE.
Each payment is typically 50% of your previous year’s tax liability (excluding capital gains and student loan repayments), with one payment due by 31 January and the second by 31 July.
When a reduction may be possible
If your income for the 2024-25 tax year is expected to be lower than the 2023-24 figure used to calculate your current payments on account, you may be eligible to reduce your July 2025 payment.
This situation might apply if:
- You have experienced a fall in profits from self-employment
- You have stopped working or retired during the year
- Your rental or investment income has dropped
- You have increased allowable expenses, pension contributions or losses carried forward
HMRC allows you to apply to reduce your payments on account if you believe your tax bill will be lower. This can help you avoid overpaying now and waiting for a refund after you submit your return.
How to apply for a reduction
You can apply online via your HMRC Self-Assessment account, by post using form SA303, or call and we will apply for you. The form asks for an estimate of the total tax due for the 2024-25 year, which will be used to recalculate your July 2025 instalment.
If your January 2025 payment was also higher than it should have been, HMRC will offset this when you file your tax return, and any overpaid amounts will either be refunded or credited towards your next tax bill.
Caution – do not under-estimate
It is important to be realistic. If you reduce your payments too far and your actual tax bill ends up higher than expected, HMRC will charge late payment interest on the difference from the original due date. You may also face a penalty if they believe the reduction was made carelessly or deliberately.
Keeping good records, projecting income conservatively, and seeking advice if unsure will help avoid any unwelcome surprises later on.
Summary
If your income or profits have fallen in 2024-25, you do not have to blindly pay your full July 2025 Self-Assessment instalment based on a higher previous year’s figure. With reasonable evidence, you can apply for a reduction, improving your cash flow and helping you avoid unnecessary overpayments.
Call to action:
If you think your July payment could be too high based on your current year’s income, speak to us for a quick review. We can help you assess whether a reduction is justified and make the application on your behalf to avoid overpaying.