26/06/2026
Bit of a heads up on a HMRC consultation which, potentially, will make your Self Assessment and PAYE code a lot more complicated, and have you paying tax earlier.
https://www.gov.uk/government/consultations/timely-payments-in-income-tax-self-assessment/timely-payments-in-income-tax-self-assessment-itsa
It is worth having a read and responding to, it is ill thought out out at present.
Here is a briefing we’ve sent to clients.
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In HMRCs words "At Budget 2025, the government announced changes to the timing of ITSA payments. From April 2029, ITSA taxpayers with sufficient PAYE income will make payments on account towards their forecasted ITSA liabilities through PAYE, each pay period. The government also announced that it will consult on the potential for other ITSA taxpayers to make tax payments more regularly throughout the year, closer to the point at which taxable activity takes place."
So, there are two limbs to whats being consulted on:
The first applies where someone has income under both PAYE (Employment) and Self Assessment (eg Self Employment, or Income from Property). There will be a shift as much as possible to collecting the Self Assessment liabilities via PAYE.
The second is a suggestion of accelerating Payments on Account (POAs) for those under Self Assessment without (or without sufficient) PAYE income, the acceleration moving away from the historic scheme of two POAs, January in the tax year and July after the tax year, to POAs in the same year as taxable activity.
Breaking these down, the first proposal impacts those whose main income is from Employment, but with a second income from Self Employment or Property. It appears that this is to come in from April 2029 and the consultation now is around detail rather than principle.
There are a number of obvious issues with the proposal:
• The robustness of HMRCs current PAYE coding processes, especially where there are multiple income streams and/or estimates. Codings can get very complicated, very non-transparent and very inaccurate. This proposal won't help that at all, and there is a strong case for HMRC to focus on existing systems rather than expansion.
• The need to estimate secondary sources of income accurately.
• If the main Employment is collecting all the tax from secondary sources, then take home pay becomes artificially low even though there is no extra tax paid overall - psychologically not ideal.
• Employers have to handle, and account for, greater PAYE deductions. Not a big issue, but it could take an employer over the quarterly PAYE threshold.
It appears, although the wording is oblique, that the intention is these proposals only apply to those who would be mandated to make POAs under current rules (broadly Self Assessment liability over £1,000 and less than 80% of overall liability paid at source) - so where the secondary income is minor then payments would continue under the existing Self Assessment regime, ie 31st January after tax year.
In short this proposal creates scope for considerable confusion and extra complexity, compared to the current Self Assessment arrangements. Taxpayers and their accountants will need to closely monitor annual reconciliations.
The second limb is less defined and is for consideration. Lets look at what is suggested:
• Suppose its 2026-27, the current tax year. Your Self Assessment is prepared at some stage between April 2027 and 31st January 2028.
• You make POAs (Payments on Account) in January 2027 and July 20027 based on your 2025-26 liability (from the Self Assessment prepared no later than 31 January 2027), unless this was less than £1,000 or you paid more than 80% of your tax at source.
• Your final 2026-27 tax bill is due in January 2028 with a deduction for the two POAs made in January and July 2027.
• Your 2026-27 final tax bill generates two 50% POAs for 2027-28, due January and July 2028.
What is suggested now is:
• Suppose its 2026-27, the current tax year. Your Self Assessment is prepared at some stage between April 2027 and 31st January 2028.
• You make POAs (Payments on Account) monthly or quarterly between 6th April 2026 and 5th April 2027 based on your 2025-26 liability, unless this was less than £1,000 or you paid more than 80% of your tax at source.
• Your final 2026-27 tax bill is due in January 2028 with a deduction for the POAs made monthly or quarterly during 2026-27.
• Your 2026-27 final tax bill generates the POA requirements for 2027-28, paid monthly or quarterly between 6th April 2027 and 5th April 2028.
The most obvious problem is you are expected to make POAs during the tax year, based on last years tax liability, but that may not be computed until several months after the tax year - eg 2026-27 liability crystallised from 2026-27 Self Assessment by 31st January 2028, but POAs due monthly or quarterly from 6th April 2027 onward, a ten month mismatch. Unless HMRC are very nuanced in their approach, this could require estimates of estimates, not good.
The other problem, of course, is cash flow. At present your first POA is 31st January in the tax year, ie 31st January 2027 for 2026-27, which is ten months into the tax year - now you will be expected to make POAs in real-time starting April 2026 - so an obvious squeeze on cash flow.
Finally, even after 30 years of Self Assessment - 1996-97 was when it started - POAs cause considerable confusion and angst. These proposals will only make this worse.
Of course there is a link, tentatively, into MTD ITSA - at present the quarterly submissions, which from 2028 will be mandated for many Self Assessment cases, go into a HMRC black hole, ie there is no expressed use of the quarterly figures on HMRCs part and your taxes are still calculated annually. The acceleration of POAs would make sense if HMRC were planning to use the MTD ITSA quarterly submissions to educate liabilities, however in turn that will require more sophistication in the mandated quarterly submissions, which is a whole other topic.
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