Landlords and self-employed individuals could be required to pay income tax on a monthly basis under new proposals being considered by the Treasury. The potential reform, which Labour reportedly plans to implement from April 2030, would see tax deductions calculated using income declared in the previous tax year, subsequently divided into 12 equal payments.
This significant shift in tax collection methods follows the controversial introduction of Making Tax Digital (MTD) for Income Tax earlier this year. MTD already mandates thousands of property owners and self-employed workers to adopt new quarterly reporting regimes using HMRC-approved software. The current MTD threshold applies to those with qualifying income over £50,000, but is set to drop to £30,000 next year and £20,000 from 2028, significantly widening its scope.
Under the proposed monthly payment system, an individual whose last tax return showed earnings of £30,000, for example, could face deductions of approximately £290 a month. While an HMRC spokesperson indicated that spreading payments could help taxpayers avoid unexpected lump-sum bills and reduce debt risk, experts are raising concerns about the practical implications. Zena Hanks from accountancy firm Saffery highlighted to the Daily Telegraph that the move could cause "huge disruption to cashflow" for the self-employed, particularly given the difficulty in predicting future income accurately.
The current system for self-employed taxpayers involves making payments on account twice a year, typically in January and July, also based on their previous tax return. However, critics argue that for landlords, whose income can fluctuate due to factors like property voids, repair costs, mortgage interest rate changes, or late rent payments, monthly deductions based on a past year's income could lead to significant cashflow issues. They fear taxpayers might be forced to pay tax at times when their business is already under financial pressure, even if HMRC issues refunds later.
The government is currently consulting on these plans, seeking views on how such reforms could work in practice, especially acknowledging that self-employed people and landlords often have fluctuating incomes. The proposals come as the rollout of Making Tax Digital, which was delayed multiple times and reportedly ran £1 billion over budget, continues to prompt questions about HMRC's capacity to manage another major overhaul of tax reporting and collection.