Measure
As announced at Budget 2026, the government will require Income Tax Self Assessment ('ITSA') taxpayers who make Payments on Account to make more regular in-year payments towards their final tax bill from April 2029.
The government has decided that automated in-year payments, for example through Direct Debit, will be the default mechanism for all ITSA taxpayers who are liable to make Payments on Account Taxpayers with sufficient PAYE income will have the option to pay through PAYE if they wish.
The government has confirmed it will continue to work with stakeholders with further detail to follow next year on: the frequency and timing of in-year payments; the safeguards and flexibilities needed for taxpayers facing financial difficulty; the approach to compliance, including penalties and interest; communications and support for customers; and the detail of how the transition to the new arrangements will work.
HMRC is introducing new web and app functionality, available from 2028, allowing ITSA taxpayers to estimate their liability, make voluntary payments towards it ahead of the change, and track how their payments are covering their forecast tax liability.
ITSA taxpayers who are liable to make Payments on Account. The changes particularly affect the self-employed, including partners, but are relevant to any taxpayers with income that has not been fully taxed at source. Payroll operators are also affected due to the option to have payments collected via PAYE.
The changes will take effect from April 2029. HMRC's new digital tools to support the transition will become available from 2028, and the government intends to confirm further design detail, including on frequency, safeguards and compliance, during 2027.
The proposals could pose some serious cash flow challenges to individuals whose income does not accrue evenly through the tax year, as part of the tax may be due long before the income is received. For example, if a dividend is received in March, most of the tax on it will already have been due in the preceding months/quarters. This principle is particularly relevant to self-employed individuals with fluctuating profits, including seasonal businesses such as farming. Further difficulties could arise for businesses that are required to use the accruals basis (e.g. LLPs that are incorporated in the UK) as income may be recognised for income tax purposes long before it is received.
The proposals will also add significant complexity to the tax compliance cycle, as it will be necessary for taxpayers or their agents to forecast future income and revise estimated tax liabilities at several points through the tax year.
The government's decision to make automated direct payments the default, with PAYE collection available only by opt-in, is a significant and sensible shift from the original proposal that they consulted on in the summer of 2026, which would have mandated collection via PAYE wherever possible.
The government acknowledges that most respondents to the consultation opposed the policy and raised concerns about cash flow difficulties and complexity. It should become clearer over the next year whether sufficient safeguards can be put in place to protect taxpayers from the detrimental effects of the policy.