Reducing Payment on accounts

Payment on accounts can be reduced if estimated tax for the new tax year is lower than the previous tax year. You can also reduce Payment on Account by logging in to your online HMRC account and clicking ‘Reduce payments on account’ or, you can send form SA303 to your tax office.  However if your taxes turns out to be higher, HMRC can apply the original payment on accounts amount.

In practice, many people choose to reduce their Payment on account if they are having trouble paying their tax bill. Some individuals reduce their Payment on Account, presuming that they will be in better financial shape later, and will therefore find it easier to settle the remainder of their bill.

You should think carefully before doing this. Remember that, if your income is the same or higher in the next tax year, you will still have to pay the same amount.

All you are really doing is delaying the pain, rather than eliminating it altogether. It is also important to note that underpayments will be subject to interest. If you reduce your Payment on Account and it subsequently turns out that you have underpaid, you will have to pay interest on the outstanding amount. This can significantly increase your tax bill.