If you file Self Assessment and make payments on account, 31 July 2026 is your second POA deadline for the 2025-26 tax year — and it is probably the single largest tax payment you will make this calendar year. For many self-employed people and higher-rate taxpayers with untaxed income, the July POA can run into thousands of pounds.
The payment on account system exists to smooth HMRC’s cash flow. You pay in two instalments (31 January and 31 July) based on your previous year’s tax liability, on the assumption that your income is similar year-on-year. When that assumption is wrong — because your income fell, you changed jobs, you made larger pension contributions, or you stopped having untaxed income — you can and should reduce your payments on account.
How Payments on Account Are Calculated
HMRC calculates your POA as 50% of the previous year’s tax bill (the “balancing payment” year), each on 31 January and 31 July.
Example: Your 2024-25 Self Assessment (filed by 31 January 2026) shows total tax due of £8,000. HMRC sets your 2025-26 payments on account at:
- £4,000 due 31 January 2026
- £4,000 due 31 July 2026
If your 2025-26 actual liability is £6,000, you will have overpaid £2,000. That £2,000 sits in HMRC’s account — you can request a refund or leave it on account. But you have been out of pocket for up to 12 months.
If you had reduced your POA to £3,000 each (totalling £6,000), you would have paid exactly the right amount, no overpayment, no refund wait.
When You Can Reduce Your POA
You can reduce your payments on account if you know that your current-year tax liability (2025-26) will be lower than your previous-year liability (2024-25) that HMRC is using as the basis.
Common reasons:
- Your self-employment income fell (lost a client, took time off, switched to employment)
- You made larger pension contributions (reducing taxable income)
- You stopped earning untaxed income (e.g., rental income from a property you sold, or dividends from shares you disposed of)
- You became an employee after being self-employed (PAYE now covers most of your liability)
- You claimed additional reliefs or allowances not available in the prior year (e.g., marriage allowance claimed, higher pension annual allowance carry-forward used)
- Your business made a loss that you are carrying back or offsetting
One common misconception, worth clearing up before you file an SA303: Capital Gains Tax and student loan repayments are excluded from the POA computation (HMRC manual SALF303). Your POA is 50% of last year’s income tax plus Class 4 NIC only. A large one-off capital gain in 2024-25 was settled entirely in your 31 January 2026 balancing payment — it does not inflate your 2025-26 POA, so it is not a reason to file an SA303.
How to Reduce: The SA303 Process
- Log into your HMRC online account (Personal Tax Account) or your Self Assessment account
- Navigate to “Reduce your payments on account”
- Enter the revised total for each payment — not the reduction amount, but the new lower total
- State a reason for the reduction (brief — “self-employment income lower in 2025-26” is sufficient)
- Submit
Alternatively, file form SA303 (Application to Reduce Payments on Account) by post.
Important: You are reducing the payment amount, not the expected liability. The system asks: “How much do you want to pay in January / July?” — enter the new lower amount for each.
Example (continuing from above): Your 2024-25 liability = £8,000. Your 2025-26 estimated liability = £6,000. Your POA are currently £4,000 each.
You reduce each POA to £3,000. Total POA = £6,000. Your July 2026 payment becomes £3,000 instead of £4,000. When you file your 2025-26 return and the actual liability is £5,800, you have overpaid by £200 and will receive that as a refund (or leave it on account for 2026-27).
The Risk: Interest on Over-Reductions
If you reduce your POA too aggressively and your actual liability turns out higher, HMRC charges interest on the difference from the date each POA was due to the date you pay the balancing payment (31 January 2027).
The current HMRC late payment interest rate is 7.75% (as of July 2026, subject to change — it tracks the Bank of England base rate plus 4 percentage points). This is NOT a penalty — it is interest, charged daily.
Example: You reduce each POA to £1,500 (from £4,000). Your actual liability is £8,000. You paid £3,000 in POA. The remaining £5,000 is payable by 31 January 2027. HMRC charges interest on:
- £2,500 (the underpayment on the first POA) from 31 January 2026 to 31 January 2027 — roughly £194 at 7.75%
- £2,500 (the underpayment on the second POA) from 31 July 2026 to 31 January 2027 — roughly £98
Total interest = approximately £291. Not catastrophic, but also avoidable. Intentionally under-reducing to play the float is not cost-effective at 7.75% interest — only reduce to what you genuinely expect to owe.
There is no penalty for reasonable POA reductions even if you slightly underestimate. The penalty provisions (up to 30% of the under-assessment) apply to careless or deliberate inaccuracies in tax returns, not to genuinely estimated POA reductions. If your estimate was reasonable at the time — even if it turns out slightly low — HMRC typically charges only interest, not penalties.
Special Cases
You Exited Self-Employment During 2025-26
If you stopped being self-employed and are now an employee (PAYE), your 2025-26 tax may already be largely covered through payroll withholding. In this case, your POA for 2025-26 can often be reduced to nil — all of your tax is being collected at source.
The same logic applies if you retired, left the UK, or otherwise stopped having substantial untaxed income.
A CGT-Spiked January Bill Does NOT Inflate Your POA
If your 2024-25 liability included a large capital gain (selling a second property, shares, crypto), the CGT was collected once, in your 31 January 2026 balancing payment — and then it drops out. CGT is excluded from the POA computation (HMRC manual SALF303: “No payments on account are required in respect of capital gains tax”), so your July 2026 POA is based on your 2024-25 income tax and Class 4 NIC only, as if the gain had never happened.
Two practical consequences. First, a one-off gain is not a valid SA303 reduction scenario — if you reduce your POA on that basis you’re reducing against a number the gain never entered, and you’ll owe the shortfall plus interest. Second, the real cash-flow shock of a CGT year is the January balancing payment, not the following July’s POA — budget for the gain’s tax in the January after the disposal (or use HMRC’s 60-day property CGT reporting where it applies), and leave your POA alone.
Student Loan Repayments Through Self Assessment
Student loan repayments collected through Self Assessment are also excluded from the POA computation — like CGT, they’re settled entirely in the balancing payment (SALF303). When estimating a reduced POA, base your figure on expected income tax plus Class 4 NIC only; the student loan element will be collected with the balancing payment regardless of what your POA is set to.
Practical Steps for July 2026
- Estimate your 2025-26 income — including employment income (P60/P45 figures), self-employment profit (rough estimate is fine at this stage), rental income, savings and dividend income, pension income, and capital gains
- Run the numbers through a tax calculator — the Self-Employment Tax Calculator or Income Tax Calculator to estimate your 2025-26 tax liability
- Compare to 2024-25: If 2025-26 is significantly lower, consider a POA reduction
- If reducing, do it before 31 July 2026 — the reduction applies prospectively, so you need to submit it before the POA is due
- Keep a note of your calculation — the income estimate and the rough numbers behind your reduction. HMRC rarely queries reasonable POA reductions, but having your working is sensible
Bottom Line
- Your July 2026 POA is based on 2024-25 — if your 2025-26 income is lower, reduce it
- Use SA303 online to reduce each payment to your new estimated amount, not the reduction amount
- Over-reducing triggers interest at 7.75% — not penalties, but not free money either
- CGT and student loan repayments never enter the POA base (SALF303) — a one-off gain hits January’s balancing payment once and is not a reason to reduce your POA