A recent consultation paper released by HM Revenue & Customs (HMRC) could spell concerning news if you are one of the 3.6 million self-assessment taxpayers who make payments on account.
While summer temperatures soared across the UK, HMRC unveiled a substantial consultation document that has left many taxpayers feeling the heat. The paper proposes a brand-new regime for collecting tax, primarily impacting the self-employed and those who rely on payments on account.
The Current Self-Assessment Landscape
At present, taxpayers have two primary methods for making payments on account to cover their tax liabilities.
How Payments on Account Work Today
Depending on your circumstances, your payments are currently managed in one of two ways:
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Through PAYE Deductions: Tax is collected via an adjustment to your tax code for the relevant tax year, acting as a deduction from your PAYE earnings (such as employment or pension income).
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Through Bi-Annual Instalments: You make two lump-sum payments—the first on 31 January of the relevant tax year, and the second on the following 31 July.
If these payments on account do not fully cover your tax liability, a final balance payment is due on 31 January of the following tax year.
Unsurprisingly, HMRC is not a fan of this second option. Under the instalment system, the gap between receiving income and making the final tax payment can stretch up to 22 months. For instance, income earned on 6 April 2026 might not see a final balance tax charge until 31 January 2028. HMRC argues this lag is a primary reason why roughly one in five self-assessment tax bills are paid late.
HMRC’s Proposed Changes for 2029
To combat late payments and close the timeline gap, the consultation paper outlines two distinct solutions set to take effect in April 2029.
Two New Collection Methods
Broadly speaking, HMRC’s proposed changes depend on your income structure:
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For taxpayers with PAYE income: Payments on account would be collected steadily throughout the tax year via a coding adjustment.
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For taxpayers without PAYE income: This is the typical scenario for self-employed individuals. Payments on account would be collected directly and continuously over the tax year, likely via direct debit.
The Impact on Taxpayers: A Cash Flow Crunch?
While collecting tax sooner is undoubtedly good news for the Treasury, it poses a significant cash flow challenge for the taxpayer. The consultation highlights several complex transitional issues, the most pressing of which is the potential financial burden during the 2029/30 tax year.
During this transitional year, a taxpayer could simultaneously face:
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A second 2028/29 payment on account (due 31 July 2029).
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Ongoing payments on account for the 2029/30 tax year (collected continuously throughout the year).
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A final 2028/29 balance payment (due 31 January 2030).
A formal government response detailing the results of this consultation is expected to be published alongside the Autumn Budget.
Navigate the Changes with Chartwell Wealth Management
Changes to tax collection can create unexpected hurdles, especially when they threaten to disrupt your cash flow or overlap with existing liabilities. You don’t have to navigate these complexities alone.
If you are concerned about how HMRC’s proposed changes to payments on account might affect your personal finances or business cash flow, we invite you to get in touch. Contact Chartwell Wealth Management today to speak with our experienced team. We can help you proactively plan for the future, ensuring you remain tax-efficient and financially secure no matter what legislative changes lie ahead.
Please Note: Tax treatment varies according to individual circumstances and is subject to change. The Financial Conduct Authority does not regulate tax advice.
