HMRC Consultation on Timely Payments in Income Tax Self Assessment

By Tim Lynch, Private Client Partner, Ballards

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HMRC Consultation on Timely Payments in Income Tax Self Assessment

What could change for business owners, landlords and the self-employed?

On 23 June 2026, HMRC launched a consultation on one of the most significant proposed changes to the Self Assessment system in decades. The consultation, Timely Payments in Income Tax Self Assessment, follows the announcement made at Budget 2025 and seeks views on fundamentally changing when taxpayers pay income tax rather than changing how much tax they pay.

The proposals are currently scheduled for implementation from April 2029 and could affect millions of taxpayers, particularly business owners, company directors, landlords and self-employed individuals who currently rely on the Self Assessment payment regime. The full Tax Update 2026 summary can be read on GOV.UK.

Why is HMRC considering change?

Under the current Self Assessment system, there can be a significant delay between income being earned and tax being paid.

For example, income earned in April 2025 may not be fully paid over to HMRC until January 2027. HMRC estimates that the existing framework can create a delay of up to 22 months between earning income and paying the corresponding tax.

The Government believes that:

• Large January and July tax bills can create financial pressure for taxpayers.
• The current timing contributes to tax debt and missed payments.
• More regular payments would better align tax liabilities with income generation.
• Many other countries already collect tax more contemporaneously.

Importantly, HMRC stresses that taxpayers will not pay more tax overall. The consultation is solely concerned with the timing of payments.

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"For many clients, this could be the most significant change to the Self Assessment payment regime for a generation."

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The current Self Assessment payment regime

At present, many taxpayers make payments as follows:

• 31 January: balancing payment for the previous tax year, and first payment on account for the current year.
• 31 July: second payment on account for the current year.

For many business owners and landlords, this means paying substantial lump sums twice a year, often requiring careful cashflow planning.

The key proposal, paying through PAYE

The consultation's primary proposal affects taxpayers who have both:

• Income taxed through PAYE (employment or pension income), and
• Additional income reported through Self Assessment (for example rental income or self-employment income).

From April 2029, HMRC proposes that these individuals would make payments on account of their Self Assessment liability through the PAYE system during the tax year.

Instead of two large payments in January and July, tax would be collected in smaller instalments through payroll throughout the year.

How would it work?

HMRC's current thinking is that:

• The previous year's tax return would be used to forecast the current year's Self Assessment liability.
• That forecast tax would be divided into instalments (which can be adjusted).
• PAYE deductions would be adjusted to collect those amounts during the year.
• Taxpayers would continue to submit Self Assessment returns annually.
• A balancing payment or repayment would still arise once actual figures are known.

In effect, Self Assessment would become much more similar to PAYE, with tax being collected as income arises rather than many months later.

Who could be affected?

HMRC estimates that around 2.5 million taxpayers could fall within the proposed PAYE collection system because they have both Self Assessment income and sufficient PAYE income.

Examples may include:

• Company directors receiving salary and dividends.
• Employees with rental properties.
• Individuals with employment income and self-employment income.
• Partners with PAYE earnings alongside partnership profits.
• Pensioners with additional taxable income.

For these individuals, the traditional January and July payment cycle could effectively disappear and be replaced by in-year deductions.

What about taxpayers without PAYE income?

The consultation also considers taxpayers who do not have sufficient PAYE income to facilitate collection through payroll.

This group includes many:

• Sole traders.
• Landlords.
• Retired individuals.
• Partners in professional practices.
• Business owners with small salaries and large dividends.
• Investors.

For these taxpayers, HMRC is exploring whether payments on account should become more frequent. Potential alternatives include:

• Monthly payments.
• Quarterly payments.
• Other more regular instalment arrangements.

The Government is seeking views on how such arrangements could operate while remaining proportionate and practical.

Key issues and challenges

While paying tax closer to the point income is earned may seem attractive, several practical challenges emerge.

1. Forecasting accuracy

The proposals rely heavily on forecasting future income. Many taxpayers experience:

• Fluctuating trading profits.
• Variable rental income.
• Bonus payments.
• Dividend payments which can be half-yearly or quarterly.
• Irregular investment returns.

An inaccurate forecast could lead to overpayments during the year, unexpected balancing payments, and increased administrative burdens.

2. Cashflow implications

Some taxpayers may welcome smaller monthly deductions. However, others currently benefit from retaining funds for longer before tax becomes due. Earlier payment would effectively accelerate tax outflows and reduce working capital availability.

For business owners, investors and landlords, this could materially affect cashflow management and funding arrangements.

3. Transition to the new regime

The move to a new payment timetable raises significant transitional questions. The consultation acknowledges concerns around how taxpayers will move from the existing January/July system into a new in-year payment model without creating overlapping liabilities.

This is likely to be one of the most contentious aspects of the reform.

4. Administrative complexity

Additional considerations include employer payroll impacts, changes for tax agents, safeguards to prevent excessive deductions, managing changes in circumstances during the tax year, and supporting new Self Assessment taxpayers.

What does this mean for clients?

Although implementation is not proposed until April 2029, the consultation signals a clear direction of travel. The Government's objective is to align income tax more closely with the timing of earnings and to reduce the reliance on large annual or bi-annual tax payments.

For taxpayers, the impact may be significant.

Potential benefits

• Reduced January tax shocks.
• Smaller and more predictable payments.
• Potential reduction in tax debt.
• Improved budgeting for some taxpayers.

Potential drawbacks

• Earlier tax payments.
• Reduced cashflow flexibility.
• Greater reliance on forecasting.
• Increased complexity during the transition period.
• Additional professional costs.

My View

The consultation represents a major shift in the philosophy of Self Assessment. Whilst spreading tax payments throughout the year may help some individuals budget more effectively, many business owners, landlords and investors will be concerned about the impact on cashflow and the practical challenges of forecasting income accurately.

The detail will be critical. Particular attention will need to be given to transitional arrangements, safeguards against over-collection, and ensuring that taxpayers with fluctuating income are not disadvantaged.

With consultation responses due by 4 August 2026 and a government response expected in Autumn 2026, advisers and taxpayers alike should monitor developments closely.

For many clients, this could be the most significant change to the Self Assessment payment regime for a generation.

If you would like to discuss how the timely payments proposals might affect your position or your business, our private client team would be happy to help. Find out more about our private client services.

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