Anyone subject to the UK’s Self Assessment system knows the rhythm by now. Income is earned across the tax year and the bill for it lands the following January.
While Making Tax Digital (MTD) for Income Tax hasn’t changed when and how tax is paid, that could soon change under a new Government proposal.
Published in the latest HMRC Tax Update 2026, the new system would look at introducing a new monthly payment system for tax that could eventually replace the single annual tax bill or the existing payments on account (POA) process.
Where things stand today
At the moment, Income Tax Self Assessment (ITSA) taxpayers pay their bill either as a single payment by 31 January after the tax year ends or through two POAs during and just after the year, with any shortfall settled through a balancing payment.
Payments on account are calculated based on the previous year’s liability and only kick in once a taxpayer’s bill exceeds £1,000.
The new tax payment proposal
The Government wants to move payment much closer to when the income is actually earned, starting from April 2029. There are currently two routes being considered and consulted on.
Taxpayers with income through PAYE, whether from employment or a private pension, would have their forecast ITSA liability collected in monthly instalments through their tax code, worth 8.3 per cent each month, with a balancing payment the following January if needed.
HMRC estimates roughly 2.1 million taxpayers would fall into this group.
For those without a PAYE income to draw on, the consultation explores making payments on account more frequent, moving to monthly or quarterly instalments rather than the current twice-yearly arrangement.
A lower £1,000 threshold is also being considered, which would pull more taxpayers into the system altogether.
Remember what MTD was supposed to be
If you are reading this and remember promises from HMRC in the early days of MTD that the new regime wouldn’t change the payment of tax you may be a little perplexed.
Taxpayers were assured that the change was about how records were kept and reported, not about when tax was due.
Payment timing was meant to be untouched by the reform, but this new consultation puts that assurance back in question.
The case in its favour
The rationale behind this change is, perhaps, reasonable. Around one in five ITSA bills are paid late under the current system, often because the size of the January bill catches people out.
Spreading that liability across the year in smaller amounts could make budgeting easier for taxpayers who currently find it hard to set money aside for a lump sum.
Many people are now used to paying many of their other bills in smaller monthly or quarterly instalments and the information provided by quarterly MTD reporting will allow HMRC to build a better picture of a person’s liabilities.
Nothing is set in stone
It is important to stress that none of this is confirmed. The Government is only consulting on the detail, including how safeguards like the PAYE deduction cap should work and how the transition should be managed for anyone facing two years of liabilities close together.
The consultation is due to end on 4 August 2026, so that agents and taxpayers have time to comment on the proposals.
However, given that a date for its implementation has been fixed, it is clear that this will be HMRC’s direction of travel unless they face a significant backlash.
In the meantime, if you would like to talk through what this could mean for your own tax position in future, please get in touch.