Your Income Fell — So Why Is HMRC Still Asking for the Same Tax?

Your business had a strong year, but your income has now dropped significantly. You check your Self Assessment and see that HMRC is still asking for Payments on Account based on your previous tax bill. Why? These payments are normally calculated from the previous year’s tax liability, with instalments usually due on 31 January and 31 July. So your current income can fall while the amount HMRC asks you to pay initially stays the same.

The good news is that you do not necessarily have to keep paying based on last year’s figures. If you reasonably expect your current-year tax liability to be lower, you can ask HMRC to reduce your Payments on Account online or by using form SA303. But there is an important catch: if you reduce them too far and your final tax bill is higher than expected, HMRC can charge interest on the difference.

So a sudden drop in income is not just a cash-flow issue — it can also be a reason to review your Payments on Account. The key is to base any reduction on a realistic estimate of your full tax position, rather than simply choosing a lower figure because business has slowed down.