HMRC's Timely Payments Plans Could Change How Millions Pay Tax

The way millions of people pay tax could be set for its biggest overhaul since Self Assessment was introduced nearly 30 years ago.

HMRC is consulting on plans that would bring tax payments much closer to the point at which income is earned, rather than allowing taxpayers to settle large bills many months later. The initiative, known as Timely Payments, is designed to reduce tax debt, improve budgeting and bring Self Assessment more in line with the real-time approach already used under PAYE.

The proposals wouldn't change how much tax people pay overall. What they could change is when that tax is collected, and for many people that could have a real impact on how they manage their finances throughout the year.

What is Being Proposed?

Although much of the consultation focuses on people who complete a Self Assessment tax return and also receive income through PAYE, such as a salary or private pension, HMRC is considering wider changes to how Self Assessment tax is paid.

Under the main proposal, taxpayers with sufficient PAYE income would start making contributions towards their Self Assessment tax bill through payroll from April 2029. Instead of paying a large amount after the end of the tax year, payments would be spread throughout the year and collected each payday using estimated figures based on previous tax returns.

However, the consultation goes further than PAYE taxpayers alone. The government is also exploring whether more regular payment arrangements could be introduced for other Self Assessment taxpayers, including those without any PAYE income. This could involve reforming the current Payments on Account system and potentially moving to monthly or quarterly payments instead of the existing twice-yearly approach.

Why Does HMRC Want to Change the System?

Under the current Self Assessment system, there can be a significant gap between earning income and paying the associated tax. HMRC says that in some circumstances this delay can be as long as 22 months.

The government believes this contributes to budgeting difficulties and increases the risk of taxpayers falling behind with their obligations. HMRC reports that around one in five Self Assessment bills are paid late, often resulting in interest charges, penalties and growing tax debts.

HMRC believes collecting tax closer to the point it's earned will help people keep on top of their tax affairs and reduce the risk of large bills building up in the background.

Of course, there is also a practical benefit for HMRC itself. Collecting tax sooner means the government receives revenue earlier and reduces the amount of outstanding tax waiting to be collected.

Who Could Be Affected?

Self Assessment taxpayers who also have PAYE income

HMRC estimates there are around 7 million people who have both Self Assessment income and PAYE income from employment or a private pension. Of those, approximately 2.1 million are expected to have sufficient PAYE income to fall within the new mandatory payment system from April 2029.

Examples include:

• Landlords with a full-time job
• Employees with side businesses
• Company directors who receive a salary and dividends
• Pensioners with taxable rental or investment income
• Freelancers with employment income alongside self-employment earnings

Self Assessment taxpayers without PAYE income

Although no firm proposals have been announced for this group, the consultation clearly explores whether more frequent payments could be introduced for taxpayers who do not have a PAYE income source. This could include reforming the current Payments on Account system, potentially moving towards monthly or quarterly payments.

Examples include:

• Sole traders
• Self-employed consultants
• Tradespeople
• Some landlords
• Partners in partnerships

Employers, payroll teams and pension providers

The proposals would create additional responsibilities for organisations operating PAYE because more tax would be collected through tax codes. HMRC acknowledges that employers and payroll teams may experience:

• More tax code changes
• More employee queries about take-home pay
• Potentially higher PAYE liabilities
• In some cases, a move from quarterly to monthly PAYE payments to HMRC if thresholds are exceeded

Is HMRC Solving the Right Problem?

The impact of these proposals is likely to vary considerably depending on individual circumstances.

One feature of the current system is that there's often a gap between earning income and paying the tax on it. Many taxpayers use that time to build up reserves, manage business costs and prepare for future tax bills. Under a more real-time system, some of that flexibility could be lost.

For people with fairly predictable income, the change may not feel particularly dramatic. However, those with more variable earnings could face greater challenges. Landlords, consultants, business owners and investors often see their income fluctuate throughout the year, making accurate forecasting more difficult and increasing the likelihood of adjustments where tax has been collected based on estimates.

Which raises an important question: is the timing of tax payments really the thing that causes people to fall behind?

The proposals also form part of a wider shift towards more real-time tax administration. Initiatives such as Making Tax Digital, digital record keeping requirements and discussions around more frequent tax payments all point towards HMRC seeking greater visibility of taxpayers' finances throughout the year rather than after it has ended.

What Happens Next?

The consultation is currently open, with HMRC seeking feedback from taxpayers, advisers, employers and representative bodies on how the proposals could work in practice.

Responses will help shape HMRC's next steps, including any future legislation required to implement the changes. The earliest suggested start date remains April 2029.

If introduced, Timely Payments could make tax bills feel more manageable for some taxpayers by spreading payments throughout the year. For others, particularly those with variable income, the benefits may be less obvious. As the consultation progresses, the key question will be whether more frequent payments genuinely reduce tax debt or simply change the timing of when taxpayers feel the pressure.

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