In a radical move, HMRC plans to end twice-yearly tax bills for the seven million PAYE taxpayers inside self assessment, with monthly ‘payday’ payments
Following the introduction of mandatory Making Tax Digital for Income Tax for earners down to as low as £20,000 within the next two years, the direction of travel is clear with HMRC aiming for more regular, frequent in-year payments rather than the current twice annual payments for all self assessment taxpayers.
HMRC is now planning to change the current payment arrangements for income tax self assessment (ITSA) taxpayers related specifically to their PAYE-related income to a system of more frequent, monthly payments, based on a percentage of overall annual earnings. This is described as ‘more timely payment’ by HMRC and will start in less than three years’ time at the start of the 2029-30 tax year.
In other words, HMRC will be collecting tax on a much more frequent basis from self assessment taxpayers from April 2029, specifically it will change the payment timings for self assessment taxpayers with Pay As You Earn (PAYE) income.
This measure will have a huge impact on taxpayers with an estimated seven million taxpayers already in self assessment with PAYE income set to be affected. It will also have a significant impact on employers and pension providers, all involved in taxing some earnings at source, not to mention tax advisers and accountants, who will be inundated with questions from affected clients.
The proposals will see income tax self assessment (ITSA) taxpayers with PAYE income be required to pay their forecasted ITSA liability more frequently in-year from April 2029. At the moment, these taxpayers have up to 22 months to pay the tax bill from the initial taxable activity.
‘From April 2029, taxpayers will pay the first instalment of their forecasted ITSA liability for the 2029-30 tax year. Thereafter, taxpayers will pay instalments of their ITSA liability each payday,’ the HMRC consultation states.
‘Payday’ is defined in the consultation as being ‘divided into equal payments through the year’, effectively equal monthly instalments of 8.3% of the individual’s annual total HMRC estimated tax bill.
In the first year of operation, taxpayers will be hit by two years of tax liability in a single year.
The in-year payments will also raise issues for affected taxpayers with seasonal or irregular income, but HMRC stated ‘they will be able to update their forecast, and their required payments will adjust accordingly’. HMRC added: ‘The circumstances of this group will be carefully considered in the design of payment timings and any associated easements or safeguards.’
There will clearly be a major burden during the transition to the new rules as affected taxpayers will effectively be having to pay two lots of tax in a single tax year. The government acknowledged ‘there will be an adjustment period whereby liabilities due under the new payment schedule will be paid alongside those due under the existing payment schedule’.
Coming at the same time as the upheaval of quarterly reporting under MTD for Income Tax, the latest proposals will mark a radical overhaul of the current tax system for taxpayers under self assessment.
The proposed reforms ‘will not increase the amount of tax due,’ HMRC stated, but will ‘bring the timing forward so that tax is paid closer to when the income is earned’.
Payments will be forecasted by HMRC, based on past self assessment returns, with taxpayers able to update their forecasts.
Under the new system, taxpayers will report their actual liability and reconcile their payments with a balancing payment, or repayment from HMRC, when they complete their self assessment return.
This creates complexity for employers as HMRC said under the proposals ‘they may deduct more tax from some of their employees each payday because of the inclusion of forecasted ITSA liabilities’.
Employers will also have to deal with multiple changes to tax codes, which HMRC also needs to consider.
CIOT tax technical senior manager Lauren Fletcher warned: ‘PAYE codes can be difficult for taxpayers to understand currently – adding income tax payments into the mix has the potential to make the tax system even more difficult to navigate.
‘Transition needs to be thought through carefully as it could present cashflow challenges to taxpayers, even as it helps the government with theirs. Income tax payments will be estimated based on the last submitted tax return, raising questions about how these changes align with the longer-term direction of Making Tax Digital.’
The government is also reviewing safeguards for low earners who may not be able to lose more of their income by automatic deduction due to HMRC’s ITSA tax assessment affecting their PAYE income.
Payment alignment and a shift to real time reporting has been a long-held aspiration of the Treasury and HMRC ever since real time information reporting came in.
Emma Rawson, ATT director of public policy, said: ‘It’s been a long-held desire of Treasury and government to bring self-assessment payments closer to the real time collection seen in PAYE.
‘However, there will be significant practical hurdles to overcome, and the changes could lead to cash flow issues if small businesses are not given time to prepare. From an admin perspective, if payments on account are required on a more frequent basis, it will be essential that taxpayers have an easy route to change amounts collected where their income fluctuates.’
The impact assessment stated the measure would raise an additional £605m for the Treasury, painful for the individuals caught by the changes, and small change for the Exchequer. Then into 2030-31 tax year, it will raise an extra £235m above the current arrangements. For such a potentially major upheaval, the benefit cost analysis is questionable.
Payment on account also up for review
In addition, HMRC is looking to review the payment on account (POA) rules from the current two payments a year to a possible three or four payments a year from April 2029. HMRC would forecast tax liability for the forthcoming year, with a balancing payment for the taxpayer, but is looking for views on whether this would work.
This very brief HMRC consultation runs for six weeks only and outlines a radical overhaul of the ITSA payment arrangements. The idea was first proposed in the mass of papers released at Budget 2025.
In the latest consultation, HMRC claimed: ‘Spreading tax payments through the year into smaller, regular payments will help reduce tax debt and avoid taxpayers having to pay larger, infrequent and sometimes unexpected bills.’
With HMRC struggling to bring down the tax gap, now at a record high of £59.2bn revealed in figures released this week for 2024-25, it is not clear whether in-year payments are an attempt to try to reduce this total. Currently HMRC says one in five ITSA tax bills are paid late so there is some rationale for enabling more regular payments.
A decision on next steps will be taken after consultation responses are reviewed, with a response due in autumn 2026, effectively before the next Budget.
Any relevant legislation will be introduced in a Finance Bill ahead of implementation in April 2029.
The consultation closes for comment on 4 August 2026.
HMRC consultation, Timely Payments in Income Tax Self Assessment (ITSA)
Article published by Business and Accountancy Daily on 24/06/2026, Written by Sarah White
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