The UK government's proposals to shift self-assessment tax payments for millions of individuals from large lump sums to more frequent monthly instalments could significantly alter their tax management landscape. According to figures announced at the Autumn Budget 2025, this overhaul is set to be implemented from April 2029 and is currently under consultation. An estimated 2.1 million self-assessment taxpayers who also receive income through Pay As You Earn (PAYE) from employment or a private pension will be affected by the changes.
Currently, self-assessment tax return filers typically report their income and settle their tax bill for the previous tax year by 31 January, with many required to make 'payments on account' by 31 July. These advance payments amount to 50% of their expected tax liability. The proposed shake-up specifically targets those with both self-employment income and a PAYE job or pension, with a view to integrating these payments more seamlessly.
Under the new system, from the 2029-30 tax year, affected taxpayers would settle their tax bill in two main parts. An estimated 8.3% of their projected tax liability would be deducted each month from their wages or pension. This initial amount is based on their previous year's tax return. If the final tax bill calculated after filing their return for that year exceeds the total collected monthly, the remaining balance would be due by 31 January 2031. Conversely, if an overpayment occurs, HMRC would issue a refund once the tax return has been processed.
HMRC is also inviting public feedback on potentially lowering the current £1,000 threshold that dictates whether taxpayers need to make payments on account. This could bring more individuals into the sphere of making advance payments. For those with seasonal or irregular income, HMRC plans to propose several safeguards to ensure fairness and flexibility within the new framework.
The transition to this new system for the 2029-30 tax year also poses a challenge for taxpayers who will still owe tax for the preceding 2028-29 tax year under the old rules. HMRC is exploring ways to smooth this handover, including options such as allowing taxpayers to make voluntary payments ahead of 2029 and potentially spreading the older 2028-29 tax liability across a longer period to ease the financial burden during the changeover.