The government has recently announced proposals that could significantly change how millions of people pay their Self-Assessment liabilities from April 2029. Whilst nothing has been confirmed yet, the proposals give a clear indication of the direction which HMRC is intending to head – moving tax payments much closer to the time income is received rather than many months later.
What’s changing?
Currently, many self-employed individuals and landlords either pay their tax in a single payment by 31 January following the end of the tax year, or through the existing Payments on Account system, with payments due on 31 January and 31 July.
The new proposal aims to replace this approach with more regular payments during the tax year itself. The objective is to make paying tax more manageable, reduce late payments and prevent taxpayers from building up large tax bills. Around one in five Self Assessment tax bills are currently paid late, and the government believes earlier, more frequent payments could help tackle this issue.
Who could be affected?
The first phase is expected to affect around 2.1 million taxpayers who have both Pay As You Earn (PAYE) income (such as employment or a private pension) and additional income taxed through Self Assessment (such as self-employment or rental income).
Under the proposals, HMRC would estimate a taxpayer’s annual Self Assessment liability based on the previous year’s figures. That estimated tax would then be collected in 12 monthly deductions through PAYE, with any remaining balance paid once the final tax return has been submitted. Taxpayers would also be able to update their estimated liability if their circumstances change during the year – something that is currently done by adjusting your next year’s Payments on Account.
What about people without PAYE income?
For sole traders and landlords who do not receive additional PAYE income, the government is toying with introducing more frequent Payments on Account instead. Again, these would be based on forecast tax liabilities and adjusted when the final tax position is known.
The consultation on the matter carried out by the Government also asks whether the current £1,000 threshold for Payments on Account should be reduced, potentially bringing even more taxpayers into the regime.
The challenges with the transition
One of the biggest concerns is the transition into the new system. In 2029/30, some taxpayers could effectively find themselves paying tax for the previous year under the current rules while simultaneously making in-year payments towards the new tax year.
The government is seeking views on measures that could ease the transition, including spreading payments over a longer period or allowing voluntary advance payments.
What should taxpayers do now?
The proposals are still at the consultation stage, so there are no immediate changes and no need to panic just yet. However, they reinforce the importance of keeping accurate, up-to-date financial records and maintaining good bookkeeping throughout the year, which is something we are already seeing with Making Tax Digital (MTD).
We’ll continue to monitor the consultation and provide updates as further details become available. If you’re unsure how these proposals could affect you or your business, we are always happy to discuss your individual circumstances and help you prepare for the future.
