Millions of self-employed taxpayers could be forced to pay two years' worth of income tax within just 14 months under new HMRC proposals, experts have warned. The Labour government's plan, set to take effect from April 2029, would shift income tax payments to a PAYE-style automatic monthly system, replacing the current twice-yearly payment schedule.
In the first year of the new rules, however, taxpayers would still be required to make payments on account for the previous tax year. This means that in January 2029, self-employed individuals would pay their first installment for the 2028-29 tax year, with the second due in July 2029. Simultaneously, from April 2029, the new monthly payments would begin, creating a period of overlapping liabilities.
How the New System Would Work
Under the proposed 'timely payment' rules, individuals with a regular job or pension would have estimated Income Tax Self Assessment (ITSA) liabilities for additional income—such as rental or freelance earnings—deducted automatically through PAYE on each payday. Those without PAYE might face more frequent direct monthly or quarterly payments.
Dan Neidle, a tax expert and founder of Tax Policy Associates, expressed concern: "It would be a mistake to do this, and I hope the Government will realise that." His comments reflect broader anxiety among tax professionals about the transition's impact on cash flow for millions of workers.
Experts Warn of 'Accident Waiting to Happen'
Mike Warburton, The Telegraph's tax expert, described the changes as "an accident waiting to happen." The warning comes amid fears that the transition could lead to errors in tax collection, particularly if HMRC's forecasts are inaccurate.
Charlene Young, of stockbroker AJ Bell, criticised the proposal as "being billed as a measure to prevent bill shock twice a year, but it's inevitably going to involve more admin, queries and phoning the creaking doom loop that is the HMRC helpline." She added: "There's an obvious risk HMRC gets its sums wrong, as relying on tax forecasts could mean it collects too much."
HMRC Defends the Proposal
An HMRC spokesman countered the criticism, stating: "No one will pay more tax, and spreading payments more evenly across the year will help customers avoid unexpected lump-sum bills." The spokesman added: "We recently sought views on how we can smooth any transition period for customers, and we'll be setting out further details in due course."
The proposal is part of a broader government effort to modernise tax collection and reduce the administrative burden on taxpayers. However, the transition period could prove challenging, with the potential for double payments creating significant financial strain for those affected.
Impact on Self-Employed and Landlords
The changes would particularly affect self-employed workers, landlords, and others with additional income sources. Currently, such individuals make two payments on account each year, but under the new system, they would face monthly deductions, which could improve budgeting but also increase the frequency of tax-related admin.
Experts suggest that the government needs to carefully manage the transition to avoid financial hardship. The overlapping payments in 2029 would require taxpayers to have sufficient funds set aside, which could be difficult for those with irregular income.
Next Steps and Consultations
HMRC has already sought views on smoothing the transition period and plans to release further details in due course. Tax professionals and business groups are expected to lobby for a more gradual implementation to mitigate the impact on cash flow.
As the April 2029 deadline approaches, taxpayers are advised to monitor announcements and prepare for potential changes to their payment schedules. The final design of the system will be crucial in determining whether the proposal achieves its goal of reducing bill shock without creating new problems.
