Timely tax payment plans revised but cash flow concerns remain
The Chartered Institute of Taxation (CIOT) and its Low Incomes Tax Reform Group (LITRG) have welcomed the government’s decision not to require mandatory payment of Self Assessment tax though PAYE, but concerns remain about the impact of earlier and more frequent payments on taxpayers’ cash flow and the practical implementation of the wider reforms.
Following consultation over the summer, the Chancellor confirmed in the 2026 Budget that, from April 2029, Self Assessment taxpayers who make Payments on Account will move towards more frequent in-year payments.1
CIOT and LITRG support, in principle, a move towards more frequent tax payments, closer to when income is earned, to help individuals manage their tax liabilities and reduce the build-up of tax debt. However, important details still need to be resolved to turn that principle into a workable policy.
Our responses to the consultation2 highlighted that overlapping old and new payment systems could squeeze taxpayers’ cash flow in the transitional period. Earlier instalments could also leave those with seasonal or unpredictable earnings paying tax before receiving the income, potentially leaving individuals unable to invest in their businesses and those on low incomes struggling to meet everyday bills.
We also warned that if taxpayers are expected to update their income and tax estimates on a regular basis, there needs to be easy-to-use tools to do that and clear guidance on how estimates impact on late payment penalties and interest. The challenge of implementing such fundamental changes to the Self Assessment system, coming on the back of new Making Tax Digital requirements, should not be underestimated.
HMRC has committed to engaging with stakeholders to work through these and other key aspects of the design, including the frequency and timing of payments, and safeguards for those in financial difficulty.
We are also pleased to see that the government have dropped the proposal of mandatory PAYE collection for eligible taxpayers, which was a key concern for both CIOT2 and LITRG3 given the complexity and limitations of the PAYE system. Instead, automated payments via direct debit will be the default method of payment, with eligible taxpayers able to opt-in to paying through their PAYE employment or pension income.
Ellen Milner, Director of Public Policy at CIOT, which includes LITRG, said:
“We support the aim of helping people spread their tax payments and avoid the build-up of debt, but we had significant concerns about original proposals that would require certain people to pay their Self Assessment liabilities through PAYE, particularly for people with low or fluctuating incomes or limited financial resilience. As such we welcome the government’s decision to scrap plans to make PAYE collection mandatory and instead make it optional.
“However, the government’s commitment to press on with the broader reform to the current Payment on Account system means there is still a lot to get right. How frequently payments are made, how easily estimates can be changed and the safeguards for people facing financial difficulty, vulnerabilities or digital exclusion will all be crucial. More frequent payments must not mean more frequent problems for taxpayers.
“Furthermore, the transition to the new arrangements will need careful thought, particularly to avoid creating additional cash-flow pressures for taxpayers as they adjust to paying tax on a different timetable.
“We particularly welcome HMRC’s commitment to continue developing the detail with stakeholders. Co-design will be essential if these reforms are to work for the wide range of people affected by them without creating disproportionate burdens for taxpayers.”
Notes for editors
- The government’s consultation on ‘Timely Payments in Income Tax Self Assessment (ITSA) and the summary of responses can be read here: https://www.gov.uk/government/consultations/timely-payments-in-income-tax-self-assessment
- CIOT’s response to the consultation can be read here: https://www.tax.org.uk/ref1722 and LITRG’s response to the consultation can be read here: https://www.litrg.org.uk/submissions/timely-payments-income-tax-self-assessment-consultation-litrg-response
