Reform of Self Assessment Payments on Account

The Chancellor has confirmed plans to modernise the Income Tax Self Assessment Payments on Account regime from April 2029. The changes will affect self-employed individuals, landlords and others with income that is not taxed at source.

Under the current system, many taxpayers make two tax payments each year in January and July. From April 2029, these taxpayers will instead make smaller, more frequent payments throughout the year. The government says this will bring tax payments closer to when income is earned, helping taxpayers budget more effectively and reducing the risk of tax debt.

What is changing?

Payments on Account are currently required where a taxpayer’s Self Assessment liability exceeds £1,000 and less than 80% of their total tax liability has been collected at source, for example through PAYE.

Taxpayers generally make two payments on account per tax year based on the previous year’s tax bill, followed by a balancing payment or repayment once their tax return has been submitted.

The current system can leave a significant gap between income being earned and tax being paid. The first Payment on Account is not due until 10 months after the start of the tax year, and the final bill may not be settled until 22 months from the start of the tax year.

The reforms will reduce this time lag and replace these larger, infrequent payments with smaller, more frequent payments. Importantly, the proposal is to change when tax is paid rather than how much tax is payable. The government has also confirmed that payments will continue to be based on the previous year’s tax position, with taxpayers able to reduce their payments on account if their circumstances change.

Payments are expected to be automated, for example through Direct Debit, although the final design is still being developed.

What do we still not know?

The government has not yet confirmed how frequently payments will be collected. Payments could be quarterly, monthly or on another timetable. Further information is expected during 2027 as HMRC develops the new rules.

Today’s announcement did not refer to any link with Making Tax Digital for Income Tax (MTD). With the MTD rollout expanding further from April 2027, tax advisers anticipate that current-year profit information could be used when calculating tax payments. For now though, Payments on Account will continue to be based on the previous year’s tax information.

What will the changes mean for taxpayers?

For many taxpayers, paying smaller amounts more regularly may make budgeting easier and reduce the risk of a large tax bill arising long after income has been received.

However, there is another side to the reform. The current system can provide a cash flow advantage because tax is often paid some time after income is earned. Bringing payments closer to real time will reduce that benefit and may require some individuals to review how they manage their finances.

The reforms are also intended to benefit HMRC by accelerating tax receipts, reducing late payments and tax debt through more regular and automated tax collection.

There will be a transition period. HMRC has indicated that taxpayers will need to complete their obligations under the existing system while beginning payments under the new arrangements. We anticipate this will create a one-off acceleration of tax payments, with some taxpayers funding 2029/30 liabilities before 2028/29 liabilities have been fully paid. Taxpayers may find they have higher cash outgoings during 2029 and 2030 as the new tax payment timetable is introduced. The final impact will depend on the detailed transition rules, which have yet to be announced.

What should you do now?

The new regime is not scheduled to begin until April 2029, so there is no immediate action required. However, taxpayers who currently make Payments on Account should consider how more regular tax payments could affect future cash flow and budgeting, particularly as further details emerge.

Kreston Reeves Private Client Tax Manager Andrew Bonavia, said:

“For many taxpayers, paying tax in smaller regular amounts may make their liabilities easier to manage. However, the reforms will also bring tax payments forward, reducing the cash flow advantage that some taxpayers currently enjoy. The changes reinforce the importance of setting aside tax as income is earned, rather than relying on future income to meet historic tax liabilities. There is no need to take action immediately, but if you actively budget for future tax liabilities, you will find the transition to the new regime straightforward when it arrives in April 2029.”

What do the changes announced in the budget mean for you?

What does the UK Autumn Budget 2026 mean for you, your finances and your business? In our post-Budget briefing, our expert panel break down the key announcements, explore what the changes could mean for individuals and businesses, and answer questions submitted by our clients and contacts.

If you’d like to discuss anything about the reform of self-assessment payments on account please do not hesitate to get in contact with Sarah Sargent, or your usual AAB contact.