Timely payments: the consultation closes on collecting Self Assessment tax in the year it is earned

The consultation on moving Self Assessment tax payments closer to the point at which the income is earned closed on 4 August. HMRC published it on 23 June, will publish its response in the autumn, and intends to legislate in a Finance Bill ahead of implementation in April 2029. For the self-employed, the sole trader contractor and anyone with untaxed income alongside a salary, it is the most significant change to how tax is paid since Self Assessment itself.

The department's case rests on two figures. Around one in five Self Assessment bills is paid late, and roughly 1.1 million payments on account were missed in January 2025. Self Assessment raised about £48 billion in 2024-25. The gap HMRC wants to close is the one between earning and paying: while employers and pension providers remit tax on PAYE income every month, tax on Self Assessment income can be paid up to 22 months after it arises.

Two populations, two proposals

For taxpayers who have PAYE income as well as a Self Assessment liability, the proposal is that from April 2029 the liability will be collected in instalments through PAYE each pay period, calculated from the most recent tax return. A contractor drawing a salary from a company and paying tax on dividends through Self Assessment is squarely in this group. So is a retired contractor with a pension and a rental property.

For those with no PAYE income, the sole trader and the partner, the existing payments on account would be replaced by monthly or quarterly in-year payments. These would be based on the liability from two years earlier: payments in 2029-30 would derive from the 2027-28 return, with a balancing payment or repayment once the return for the year is filed.

The objections

The professional bodies' responses, published as the consultation closed, concentrate on three things. The first is fluctuating income. A payment schedule derived from a return two years old will over-collect from a business whose income has fallen and under-collect from one whose income has risen, and the mechanisms proposed for adjusting it are not yet designed. The second is cash flow: the transition year will require the tax on two periods to be found at once unless it is smoothed, and the consultation does not say how. The third is administration, since the change lands on the same taxpayers who are absorbing Making Tax Digital for Income Tax between 2026 and 2028.

HMRC's own factsheet acknowledges the cash-flow point and says any transition would be phased. It also points out that late payment interest currently runs at the Bank of England base rate plus 2.5 percentage points, so that paying earlier is not only a compliance question but a cost one.

For contractors

The limited company contractor already pays corporation tax nine months after the year end and PAYE monthly, so the change bites mainly on the dividend tax that flows through Self Assessment. Under the PAYE-instalment proposal that tax would be deducted from salary during the year, which for a director on a low salary may be arithmetically impossible: the instalment could exceed the pay. The consultation asks how such cases should be handled and does not answer.

The government's response is promised for the autumn, which in practice means around the Budget on 28 October. The Freelancer and Contractor Services Association and the accountancy bodies have asked that the design be settled before Making Tax Digital reaches the £20,000 threshold in 2028, so that the two systems are introduced as one. Whether the Treasury, under a new Chancellor with a first Budget to write, has the appetite for that sequencing is the question the autumn will answer.