If you file a UK Self Assessment return, HMRC will have issued your SA300 statement earlier in the year showing the second payment on account (POA 2) due by 31 July 2026. This is the second of two equal advance instalments towards your 2025-26 tax bill, set automatically at half of your 2024-25 liability. If your circumstances have changed — lower self-employment profits, reduced dividends, a smaller partnership draw — you may be paying HMRC far more than you will ultimately owe. The good news: you can reduce a POA before you pay it.
What the 31 July 2026 Payment Actually Covers
Payments on account are advance instalments toward your current tax year’s bill, not the one you just filed. The schedule for the 2025-26 tax year is:
| Date | Payment |
|---|---|
| 31 January 2026 | POA 1 for 2025-26 (half of 2024-25 bill) |
| 31 July 2026 | POA 2 for 2025-26 (half of 2024-25 bill) |
| 31 January 2027 | Balancing payment for 2025-26 + POA 1 for 2026-27 |
HMRC asks for payments on account when your previous year’s Self Assessment bill was £1,000 or more and less than 80% of your tax was collected at source (e.g. PAYE, CIS deductions). The SA300 notice in your HMRC online account or received by post shows the exact figure.
When You Should Consider Reducing Your POA
A POA is a forecast based on last year. The forecast is often wrong. Reduce your claim if any of the following apply for 2025-26:
- You stopped or scaled back self-employment (sold the business, moved to PAYE, semi-retired)
- A limited company director who paid lower dividends this year (e.g. to stay under the £50,270 basic-rate ceiling or avoid the £60,000 HICBC trigger)
- A partnership member whose drawings fell after a profit-sharing change
- A landlord who sold a rental property or whose portfolio has higher finance costs reducing net rental profit
- A one-off event last year (large bonus, BADR disposal, closed pension) that will not repeat
You do not need to wait until you file the 2025-26 return. If you know now that your liability will be materially lower, you can apply the reduction before the July payment clears.
How to Reduce Your Payment on Account
There are two routes. Both land in the same place at HMRC; pick whichever is more convenient.
Route 1: HMRC online account (fastest)
- Sign in to your Personal Tax Account or Business Tax Account at gov.uk
- Open Self Assessment
- Select Reduce payments on account
- Enter your estimated total tax liability for 2025-26
- HMRC automatically recalculates the two POAs at 50/50
Route 2: Form SA303 (paper or postal)
File form SA303 with HMRC, either through your agent’s online services or by post. SA303 asks for the same information — your estimate of the 2025-26 tax liability and the reason for reduction. Processing time is typically 2-4 weeks, so submit well before 31 July if you go this route.
Whichever route you use, keep a record of the estimate and the reasoning. If HMRC queries it later, you will want the figures you relied on.
The Interest Risk If You Reduce Too Far
This is the one thing that trips people up. If your reduced POAs end up being lower than half of your actual 2025-26 liability each, HMRC charges interest on the shortfall from the original payment dates (31 January 2026 and 31 July 2026) until it is paid.
HMRC’s late-payment interest rate is Bank of England base + 4% (the margin was raised from base + 2.5% to base + 4% on 6 April 2025 — not 2026). With the base rate at 3.75%, that is currently 7.75% (effective from 9 January 2026; check our HMRC interest rates guide for the up-to-date figure). There is no penalty for reducing POAs in good faith — only interest on the deferred tax. That is an important distinction.
The practical rule: reduce to a number you can defend with current-year figures (Q1/Q2 management accounts, exit-and-return-to-PAYE paperwork, dividend board minutes). If you are guessing, leave a margin.
Worked Example — Halved Self-Employment Profits
Anna is a sole-trader consultant.
- 2024-25 Self Assessment bill: £50,000 (after Class 4 NI, Class 2, income tax)
- HMRC-assessed POAs for 2025-26: £25,000 on 31 January 2026 and £25,000 on 31 July 2026
Anna’s consultancy work halved in 2025-26 because her biggest client moved in-house. Her bookkeeper estimates her 2025-26 liability will be around £25,000. If she does nothing, HMRC collects £50,000 across the two POAs — £25,000 more than she owes — and refunds it after she files her return in early 2027.
By filing a reduction through her HMRC online account in June 2026:
- POA 1 is retrospectively reduced to £12,500, so her 31 January 2026 overpayment of £12,500 is credited against POA 2
- POA 2 becomes £0 (credit absorbs the reduced amount)
- Anna keeps £25,000 of working capital for 8-18 months
If her actual 2025-26 liability lands at £28,000, she owes £3,000 on 31 January 2027 plus interest on the £3,000 shortfall from the original POA dates. Even with that interest, she is far ahead versus letting HMRC hold £25,000 interest-free.
Model your own figures with our payment on account calculator and sanity-check the balance with the tax refund estimator.
What Happens If You Miss 31 July 2026 Entirely
A late payment on account costs you interest only. There is no fixed £100 penalty (that applies to late returns), and — contrary to a lot of published advice — the 5%, 6-month and 12-month late-payment surcharges do not apply to payments on account at all.
The reason is in the legislation. The late-payment penalty table at Finance Act 2009, Schedule 56, paragraph 1 lists amounts payable under section 59B (the balancing payment) and section 59BA of TMA 1970. Payments on account are made under section 59A, which appears nowhere in that table. So:
- Interest runs from 1 August 2026 on the outstanding POA 2, at the HMRC late-payment rate, until you clear it
- No 5% surcharge after 30 days
- No further surcharges at 6 or 12 months
Those surcharges do bite on the balancing payment due the following 31 January, so an unpaid POA that is still outstanding then is a different problem — but the July deadline itself is purely an interest cost. Do not borrow expensively to hit 31 July on the strength of a surcharge that is not coming.
If cash flow is the issue you can still contact HMRC before 31 July to set up a Time to Pay arrangement — online for debts under £30,000 — which caps the interest and keeps you compliant. See our self-assessment penalty calculator to quantify exposure on the balancing payment.
Frequently Asked Questions
Can I reduce POA 2 after I have already paid POA 1?
Yes. When you file the reduction, HMRC recalculates both POAs at 50% of your new estimate. If POA 1 is now higher than half your estimate, the excess is credited against POA 2 — and refunded if POA 2 becomes negative.
Do I need my accountant to submit SA303?
No. Reducing POAs through the HMRC online account is something you can do yourself in a few minutes. An accountant is useful if the estimate is marginal or if you want someone to defend the figure if HMRC queries it.
Does reducing a POA trigger a compliance check?
Not automatically. HMRC’s systems accept the reduction. A compliance check is only triggered if the eventual return looks inconsistent with the estimate — for example, if you claimed a 50% reduction but filed a return showing only a 10% fall in income.
What if my 2025-26 income is actually higher than 2024-25?
Then do nothing. POAs are fixed at last year’s level; any additional tax is collected via the balancing payment on 31 January 2027. You do not need to voluntarily increase a POA (though you can if you want to spread the cost).
Can I reduce a POA after 31 July 2026?
Yes, but not indefinitely. TMA 1970 s59A(3)–(4) requires the claim to be made “before the 31st January next following the year of assessment” — for 2025-26 POAs that is 31 January 2027, the same day the 2025-26 return and balancing payment fall due. After that the actual return supersedes the estimates anyway, so a reduction claim has nothing left to do.