Payment on Account 31 July 2026: How to Reduce Your POA Before HMRC Collects

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

You can also reduce your POA if you made a balancing payment that included one-off items — e.g., a large capital gain in 2024-25 that will not recur in 2025-26. The balancing payment includes CGT, and the POA is based on the total liability including that CGT. If the CGT was a one-off, your 2025-26 liability is significantly lower than your 2024-25 liability, and your POA should reflect that.

How to Reduce: The SA303 Process

1. Log into your HMRC online account (Personal Tax Account) or your Self Assessment account
2. Navigate to “Reduce your payments on account”
3. Enter the revised total for each payment — not the reduction amount, but the new lower total
4. State a reason for the reduction (brief — “self-employment income lower in 2025-26” is sufficient)
5. 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 7.5% (as of May 2026, subject to change — it tracks the Bank of England base rate plus 2.5 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 £188 at 7.5%
• £2,500 (the underpayment on the second POA) from 31 July 2026 to 31 January 2027 — roughly £94

Total interest = approximately £282. Not catastrophic, but also avoidable. Intentionally under-reducing to play the float is not cost-effective at 7.5% 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.

Your Balancing Payment Was Spiked by CGT

If your 2024-25 liability included a large capital gain (selling a second property, shares, crypto), your POA is based on a figure that includes that one-off gain. You can reduce your 2025-26 POA to reflect your expected liability excluding the non-recurring gain.

This is the most common under-utilised POA reduction scenario. Someone who sold a buy-to-let in 2024-25 and paid £15,000 CGT is on the hook for £15,000 in POA (£7,500 each) for 2025-26 — despite having no CGT event that year and a total expected liability of, say, £5,000 from employment and savings income. Reducing the POA from £7,500 to £2,500 each puts £10,000 back into cash flow where it belongs.

Student Loan Repayments Through Self Assessment

If you have a student loan repaid through Self Assessment, the POA calculation includes your student loan repayment as part of the total liability. When reducing POA, make sure your reduced amount reflects the full expected liability including the student loan element — you cannot reduce the student loan portion separately.

Practical Steps for July 2026

1. 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
2. Run the numbers through a tax calculator — the Self-Employment Tax Calculator or Income Tax Calculator to estimate your 2025-26 tax liability
3. Compare to 2024-25: If 2025-26 is significantly lower, consider a POA reduction
4. If reducing, do it before 31 July 2026 — the reduction applies prospectively, so you need to submit it before the POA is due
5. 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 7.5% — not penalties, but not free money either
• The most overlooked scenario: CGT-spiked balancing payments inflating POA for a year with no gains

Sources

• HMRC — Payments on account
• HMRC — Reduce your payments on account
• HMRC — Interest rates for late payments