The government has outlined a plan to shift Income Tax Self Assessment payments through PAYE for individuals who earn both self‑employment income and wages subject to Pay As You Earn deductions, with the changes slated to begin in April 2029.
Why the shift is being proposed
Officials say one in five Self Assessment bills is filed late, often triggering fees and penalties. Tax gap data released in June 2026 revealed a 6.4 % shortfall for the 2024/25 tax year, equating to £59.2 billion in unpaid tax. Small businesses account for 62 % of that gap, while roughly half of the total relates to corporation tax.
In 2025, 1.1 million Payments on Account were missed, and in 75 % of those cases the taxpayer fell into debt, leading to additional penalties and interest. The proposed system aims to spread payments more evenly, reducing the cash‑flow strain that self‑employed people often face when large sums are due at once.
How the new system would work
Under the proposal, HMRC would use the most recent tax return to estimate a taxpayer’s Self Assessment liability and, where feasible, adjust the individual’s tax code. The updated code would allocate a portion of the Self Assessment amount to be collected through regular PAYE deductions alongside existing employment or pension tax.
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Taxpayers would still need to file their Self Assessment return by 31 January, paying any remaining balance after the PAYE deductions. A possible increase in the frequency of Payments on Account is being considered, and a balancing payment could be required in the following January if the earlier installments do not cover the full liability.
If a self‑employed individual expects their tax bill to differ significantly from the estimate, they can notify HMRC via an online form. This flexibility is intended to prevent over‑ or under‑collection while keeping the overall amount owed unchanged.
The government has opened a consultation running until 4 August, inviting comments on implementation details, including additional safeguards for the transition. Responses can be submitted through an online form or emailed to the address provided in the consultation notice.
Feedback is vital.
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Critics note that the shift may increase administrative burdens without delivering clear benefits. Steven Mather, a solicitor, warned that inaccurate forecasts could leave small businesses scrambling for refunds or extra payments, adding to their workload. He also emphasized the need for genuine support and guidance, noting that many owner‑managers lack the internal finance resources to manage added complexity.
Matthew Knight, chief freelance officer at Freelancing.Support, argued that simplification and affordable tax advice are essential for the “backbone of Britain” to bear any extra load. Similarly, Helen Llewellyn, founder of Elemental Tribe, questioned whether payroll systems and tax codes could adapt to the seasonal fluctuations typical of self‑employment income, calling the proposal a potential “fine mess.”
Stakeholders are encouraged to review the consultation documents and submit feedback before the deadline. The outcome will shape how Income Tax Self Assessment payments through PAYE are administered, potentially affecting millions of self‑employed workers and small enterprises across the UK.
