Tax
News - Tax
22 July 2026
In Budget 2025, the government announced that it is taking steps to enable Income Tax Self-Assessment (ITSA) taxpayers to pay their tax automatically through regular payments made throughout the year, with the changes expected to take effect from April 2029. In His Majesty’s Revenue and Customs (HMRC) open consultation published on 23 June 2026, details on how these changes might be implemented for ITSA taxpayers that also earn Pay as You Earn (PAYE) income as well as other ITSA taxpayers were provided. This article therefore examines the purpose of the government’s proposal, its potential implications, and other key considerations arising from the proposed changes.
The government has stated that it wants to ensure that tax payments are straightforward with payments made closer to real time as this may reduce the likelihood of late tax payments, tax debts, and late payment interest for taxpayers. It is believed that when tax payments are structured to happen closely after the taxable activity, tax defaults can be better managed, and taxpayers do not have to be faced with the shock of large tax bills at any point in the year.
According to the open consultation notice, the self-assessment (SA) tax system of many countries in the Organisation for Economic Cooperation and Development (OECD) is structured to ensure tax payment happens around three (3) months after the taxable activity, thus the proposed reforms should help align the United Kingdom (UK)’s SA tax system more closely with international practice.
The government also considers that more regular tax payments may be particularly beneficial for ITSA taxpayers who also receive income taxed through PAYE from employment or a private pension. This is because the PAYE system is already designed to collect tax shortly after income is received. The proposed reforms therefore seek to build on the success of this approach by enabling ITSA taxpayers with sufficient PAYE income to make payments on account towards their forecast ITSA liabilities. Similarly, for ITSA taxpayers that do not earn PAYE income, the government is also seeking means to support more regular tax payments. In doing so, the reforms aim to reduce the risk of tax defaults and improve the timely collection of tax.
According to the open consultation notice, from April 2029, ITSA taxpayers (under the POA scheme) will pay a first instalment of their forecast tax liability for the 2029/2030 tax year. Subsequently, additional instalments will be made each payday for those with PAYE income while considerations are still in the works on payment frequency for those without PAYE income. An obvious implication of this is that ITSA taxpayers will now make more frequent tax payments than they currently do. Of course, this will be linked to potential cashflow considerations especially in instances where ITSA taxpayers with PAYE income have tax on their total income (i.e., SA and PAYE) deducted from their PAYE income before receiving their SA income. This can be a cause of concern where SA income is irregular, delayed, ceases or becomes a bad debt. Thankfully, the reforms consider this and will allow affected taxpayers to update their tax liability forecast and adjust the required payments on account accordingly.
Additionally, the existing cap on how much tax can be collected through PAYE in any single pay period is currently limited to 50% of PAYE income. This limit exists to protect individuals’ take-home pay from being significantly reduced by a large tax deduction in any given month. However, with these changes, some taxpayers with modest PAYE earnings but higher forecast self-employment tax could find their combined liability approaching this 50% threshold. Though the consultation does not propose removing this cap, it considers whether an adjustment of this threshold may be appropriate for some taxpayers.
The reforms may have some cashflow benefits as it will reduce the financial pressure associated with meeting large tax bills under the current system where most taxpayers pay once in a year or make two payments on account (POA). Furthermore, although the proposed reforms do not alter the timing of the final Income Tax Self-Assessment return, they may help reinforce the objectives of Making Tax Digital (MTD) by encouraging taxpayers to engage more regularly with their tax affairs. For MTD taxpayers, who are required to provide quarterly updates of the income and expenses throughout the year, aligning tax payments closer to the taxable activity may therefore contribute to more accurate record-keeping and the earlier identification of discrepancies compared to the annual tax reporting and payment system.
For tax advisers and consultants these reforms mean additional responsibilities, helping taxpayers with forecasting tax liabilities, reviewing tax payment amounts, and resolving discrepancies. Employers, payroll service providers, and pension fund administrators will also have added tax compliance responsibilities where employees or pensioners also earn income from self-employment and other sources outside the PAYE tax scheme.
The implementation of these reforms means that there will be a transitional period in the 2029/2030 tax year in which taxpayers within the ITSA regime (and with sufficient PAYE income) may be required to make payments under both the current and the new tax payment systems. During this period, these taxpayers may be required to make the second POA for the 2028/2029 tax year on 31 July 2029 under the current POA system. In addition, in April 2029, these taxpayers will also be required to make the first instalment, and subsequent payday-based instalments, of their forecast tax liability for the 2029/2030 tax year under the proposed tax payment framework. Finally, a balancing payment in respect of the 2028/2029 tax year may also be required to be paid by 31 January 2030, following the filing of tax returns. It is believed that the government will explore avenues to make this transition period as seamless as possible.
Overall, it is important to note that these reforms do not seek to increase the amount of tax due and where excess tax payments are made during the year, taxpayers will still be able to seek repayments from HMRC as is the current practice. The consultation closes on 4 August 2026 after which the government will consider the views submitted and publish a response thereto in Autumn 2026. Any relevant legislation will then be introduced in a Finance Bill with a view to implementation in April 2029.
Alexander Myerson & Co Limited will continue to monitor these proposals as they develop, including the government’s response to the consultation expected in Autumn 2026, and will keep clients updated on any changes that may affect them. Please contact us today on 0151 709 9999 or email info@amyerson.com if you have any questions or concerns on how these changes could affect your SA tax payments or cashflow planning.