If you already know this year's tax will be lower than last year's, you do not have to keep paying instalments based on a year that is over. Ask HMRC to reduce the payments on account.
That is the whole move. It is for a real drop in profit, stopping trading, or switching to PAYE. It is not a way to postpone a bill you still expect to owe.
What you are reducing
Each payment on account is usually half of last year's Self Assessment tax (Income Tax plus Class 4 NI). They fall on 31 January and 31 July.
Example from the calculator: £30,000 profit, bill £4,531.80. Each instalment towards the next year is £2,265.90. If this year you will only owe about £2,000 in total, those instalments are too high, and you should say so.
If last year's bill was under £1,000, or more than 80% of your tax was already collected outside Self Assessment, you should not have payments on account at all. Check the statements page in your online account before you file a reduction.
How to do it online
- Sign in to your Government Gateway Self Assessment account.
- Open your latest return.
- Choose Reduce payments on account.
- Enter the tax you expect to owe for the year the instalments are towards, not your expected turnover, and not a round zero unless you actually expect to owe nothing.
HMRC reset both instalments from that figure. Keep a note of what you told them and why.
How to do it by post
Use form SA303 and send it to your tax office. Same information: the tax you expect to owe. Online is faster if you can use it.
If you guess too low
Reduce them, then have a bigger bill than you claimed, and HMRC charge interest on the extra you should have paid on the original dates. It is not a penalty, but it is not free either. Current rates sit on GOV.UK's interest-rates page.
Do not type £0 because you have not done the numbers yet. Use a decent estimate. The calculator plus a honest look at this year's invoices is enough for most sole traders.
When you should not reduce them
January being painful is not a reason. That is a Time to Pay conversation, or a Budget Payment Plan if the deadline has not passed. Reducing payments on account when you still expect a similar profit just moves the pain and adds interest.
A first year of Self Assessment is also a weak time to get clever. The January total is last year's actual bill plus the first instalment towards this year. You can still reduce that first instalment if this year has already fallen over. You cannot reduce the bill for the year you just filed. That one is due.
After you reduce them
Watch the year. If work picks up, the balancing payment on the next 31 January will be larger. Start holding 25% of profit again so that payment is sitting in an account rather than on a card.
If you have stopped trading, reduce the payments, file the final return when it is due, and tell HMRC you have stopped so they do not expect another one.