Government Consults on Major Reform to Income Tax Self Assessment Payments from April 2029

The government is consulting on proposals that would require many Income Tax Self Assessment (ITSA) taxpayers to pay tax closer to real time from April 2029. 

Under the plans, taxpayers with PAYE income would pay estimated ITSA liabilities through monthly PAYE deductions, while other self-employed individuals and landlords could move to monthly or quarterly payments on account. 

The reforms aim to reduce late payments and tax debt by spreading tax liabilities throughout the year, although concerns remain over cash-flow impacts and the transitional challenge of paying both 2028/29 liabilities and 2029/30 instalments during the changeover period. 

The consultation seeks views on the design, safeguards and support measures needed to implement the changes.

Key Changes Proposed

1. Mandatory ITSA Payments Through PAYE (from April 2029)

This applies to ITSA taxpayers who also receive PAYE income, such as:

• Employees with additional income from property, dividends, or self-employment.

• Pensioners receiving a private pension alongside other taxable income.

The government estimates around 2.1 million taxpayers will be affected.

How it would work

Instead of waiting until after the tax year to pay most of their ITSA liability:

• HMRC would estimate the taxpayer's ITSA liability using the previous year's tax return.

• The estimated liability would be collected through PAYE during the tax year.

• For someone paid monthly, approximately 8.3% of the forecast liability would be deducted each month (12 instalments).

• Taxpayers would be able to update forecasts if their circumstances change.

• Any difference between the estimated and actual liability would be settled through a balancing payment (or repayment) after the tax return is filed.

Example

If a taxpayer's ITSA liability for 2028/29 is £6,000:

• Monthly deduction in 2029/30 ≈ £500.

• Total collected during the year = £6,000.

• If the actual 2029/30 liability is £6,500, a balancing payment of £500 would be due by 31 January 2031.

• If the actual liability is £5,500, a £500 repayment would be due.

2. More Frequent Direct Payments on Account (POA)

For taxpayers who cannot pay through PAYE (for example, many sole traders and landlords), the government is considering replacing the current twice-yearly POA system with:

• Monthly instalments; or

• Quarterly instalments.

The government estimates around 2.5 million taxpayers currently making POAs could be affected.

Current system

Many taxpayers currently pay:

• 31 January (first POA)

• 31 July (second POA)

based on the previous year's liability.

Proposed system

Instead of two large payments, taxpayers might make:

• 12 monthly payments, or

• 4 quarterly payments,

during the same tax year in which the income arises.

As with PAYE collection:

• Payments would initially be forecast using prior-year figures.

• Taxpayers could update forecasts.

• A balancing payment or repayment would arise after the tax return is completed.

Potential Expansion of POA Rules

The consultation also seeks views on reducing the current £1,000 POA threshold.

Currently, taxpayers generally only make POAs if their prior year's ITSA liability is at least £1,000.

If this threshold is lowered:

• More taxpayers would move into instalment-based payment arrangements.

• Individuals with relatively modest self-assessment liabilities could be affected.

Transitional Issue: "Double Payment" Risk in 2029/30

The most significant practical concern is the transition year.

In 2029/30, taxpayers may need to fund:

1. Tax relating to 2028/29 under the existing rules; and

2. Instalments towards 2029/30 under the new rules.

For example:

Date	Payment
31 July 2029	Second POA for 2028/29
Throughout 2029/30	Instalments for 2029/30
31 January 2030	Balancing payment for 2028/29 plus first 2029/30 instalment obligations already underway

This could create substantial cash-flow pressures, particularly for:

• Sole traders,

• Landlords,

• Individuals with volatile income,

• Newly incorporated business owners.

The government is therefore consulting on measures such as:

• Optional advance payments before 2029,

• Extended payment periods for 2028/29 liabilities,

• Other transitional relief mechanisms.

Advantages Claimed by Government

The government argues the reforms would:

• Reduce tax debt and late payment.

• Make tax payments more predictable.

• Align tax payments more closely with when income is earned.

• Avoid large annual tax bills.

• Bring self-assessment closer to real-time taxation.

Potential Concerns

Professional bodies and taxpayers are likely to focus on:

• Cash-flow impacts for the self-employed and landlords.

• Increased complexity where income fluctuates significantly.

• Accuracy of forecasts and risk of overpayments.

• Administrative burdens of regularly updating estimates.

• Employer and pension provider payroll costs.

• Transitional funding pressures in 2029/30.

• Interaction with Making Tax Digital for Income Tax.

Who Is Most Affected?

The proposals are particularly relevant for:

• Sole traders.

• Landlords.

• Individuals with side businesses.

• Employees with significant investment, dividend or rental income.

• Pensioners with taxable income outside PAYE.

• Taxpayers within the scope of Making Tax Digital for Income Tax.

Overall, the reforms would represent one of the largest changes to the timing of income tax payments for individuals in decades, shifting the system from "pay after the tax year" toward "pay as income arises", broadly mirroring how PAYE operates for employment income.