Major HMRC tax payment changes 'will affect 3 million UK workers'

Major HMRC tax payment changes 'will affect 3 million UK workers' HMRC has explained what it is doing and why and a tax barrister has given advice to those affected Millions of self-employed workers and landlords are being urged to prepare for major changes to how they pay tax, with an expert warning that some could face overlapping payments when new HMRC rules take effect. The Government has confirmed that, from April 2029, taxpayers who currently make payments on account through Self Assessment will be required to make smaller, more frequent payments throughout the year. According to HMRC, around 3 million taxpayers currently make payments on account, meaning the changes could affect a significant number of sole traders, freelancers and landlords. Under the existing system, taxpayers typically make two advance payments each year, in January and July, based on their previous year's tax liability. The new arrangements will bring payments closer to when income is earned, rather than leaving taxpayers facing large bills months later. Concern over HMRC tax change However, a tax specialist has raised concerns about the transition period, particularly as taxpayers will need to settle outstanding liabilities from the previous tax year while beginning payments under the new system. Andy Wood, tax barrister at Tax Barrister UK, said: "The biggest concern with these changes isn't necessarily how much tax people will pay, but when they'll be expected to pay it. Under the new system, self-employed workers could find themselves paying towards their current year's tax while still settling outstanding bills from the previous year. "That doesn't mean people are being taxed twice, but it could create a significant cash flow challenge, particularly for those who aren't used to putting money aside regularly. For freelancers, sole traders and landlords with fluctuating income, having to make more frequent payments could put additional pressure on their finances." What should taxpayers do before the changes? Although the new rules won't take effect until April 2029, Andy recommended that taxpayers begin reviewing how they manage their tax obligations now. He said: "One of the most important things self-employed workers can do is start setting money aside for tax as soon as they receive income, rather than waiting until their Self Assessment deadline approaches. Keeping accurate financial records and understanding your expected tax liability can make a considerable difference when planning for these changes. "It's also worth reviewing how much you currently pay on account and whether those payments accurately reflect your earnings, particularly if your income has fallen. If you're already struggling to meet tax payments, speak to HMRC or a qualified adviser as early as possible rather than allowing unpaid bills to build up." Will the changes mean people pay more tax? The Government has confirmed that the reform will change the timing of payments rather than increase the overall amount of tax owed. However, the exact frequency of payments has not yet been finalised, with further details expected in 2027. Andy added: "While spreading payments throughout the year could help some taxpayers avoid unexpectedly large bills, the transition needs to be handled carefully. The Government will need to ensure there are appropriate safeguards for people with seasonal income, unpredictable earnings or limited cash reserves. "Ultimately, taxpayers shouldn't assume that because these changes are still a few years away, there's nothing they need to do now. Preparing early could help avoid a difficult financial adjustment when the new rules arrive." HMRC explains tax payment changes Explaining the proposals, HMRC said: "From April 2029, taxpayers who make Payments on Account will make smaller, more regular payments during the tax year in which they earn the income. The government has not yet made any final decisions on how often payments will be made under the new system. "We will work with stakeholders and affected taxpayers to determine a payment schedule that can support a range of different types of taxpayers. More details will be shared in the future. "Payments will be automated, for example by Direct Debit. If a taxpayer has enough PAYE income from employment or a private pension, they will be able to choose to pay through PAYE, if they prefer. "Payments will continue to be based on tax owed in the previous year. Taxpayers will be able to update this online if their circumstances change. Taxpayers must still file their tax returns by January 31 each year. Ensure our latest headlines always appear at the top of your Google Search by making us a Preferred Source. Click here to activate or add us as a Preferred Source in your Google search settings. "This changes when taxpayers submit payments towards their bill, not the amount of Self Assessment tax they owe. There will be a transition year in 2029 to 2030 as taxpayers will need to make their final payment for the previous tax year whilst starting to make payments under the new arrangements. "The government is confident taxpayers will be able to plan for this change. These taxpayers will have over two years to prepare, and the government will work with taxpayers and tax organisations to design the detail of the reform to ensure as smooth a transition as possible for everyone affected. The government will also provide effective information, support and tools, including payment plans to support taxpayers to prepare for this change." Why HMRC is making payment on account changes In regard to why the changes were being made, it added: "This reform will modernise Income Tax Self Assessment and the existing Payments on Account system, which is now 30 years old. It will replace the current system of large, intermittent tax payments, often many months after income was earned, with smaller, more regular payments throughout the year as earnings come in. After these changes, taxpayers will be paying today’s tax with today’s income. "This will help taxpayers to budget, reduce the risk of tax debt, and move Self Assessment closer to the way many household bills already operate. No one will see any changes to their tax liability. The reform changes when taxpayers submit payments towards their bill, not the amount of tax they owe. It will also align the UK with how equivalent tax is paid in other OECD countries, such as the US, Australia, France, Germany and Canada." HMRC said it would "continue to work with taxpayers, agents and other stakeholders on the detailed design of the new arrangements and further information will be provided in 2027". It added that taxpayers and agents would "be given guidance, tools and support to help them understand and prepare for the changes".