Budget changes improve plans to reform tax payments, but major concerns remain

The Government announced updates at yesterday’s Budget to plans which, from April 2029, could see some Self-Assessment taxpayers required to make more regular payments during the year towards their tax bill. 

Affected taxpayers with income taxed through PAYE will be able to choose to make payments through PAYE, but the default is now expected to be freestanding payment methods, such as Direct Debit.

The ATT welcomes this flexibility, which means taxpayers can choose to keep any income from sources outside their day job separate from their employment records. Our response to an earlier consultation expressed concerns over confidentiality if self-assessment liabilities were collected via PAYE – for example, a decision over who gets a pay rise could be influenced if employers knew an employee had other income outside of work.

Secondly, the Chancellor announced that more regular payments will also be required from many taxpayers who don’t have PAYE income, such as the self-employed, landlords and investors. This addresses the issue raised by the ATT that employees and recipients of private pensions were otherwise being treated as a “soft target” for the reforms, because PAYE offered a relatively simple mechanism for collecting tax during the year.

However, concerns remain about the wider impact of accelerating Self-Assessment payments, particularly the potential cashflow implications for taxpayers during the transition to the new system.

Jon Stride, chair of the ATT’s Technical Steering Group, said:

“We are pleased that the Government has listened to some of the concerns raised by the ATT and others and moved away from an approach which could have required self-assessment tax to be collected automatically through PAYE.

“Giving taxpayers a choice over whether to use PAYE is important. Someone with rental or investment income may quite reasonably prefer to keep that separate from their employment, rather than have details of their wider financial circumstances potentially reflected in their PAYE tax code.

“But changing how taxpayers can make these payments does not resolve our more fundamental concern about whether accelerating Self-Assessment payments is necessary or proportionate.

“Moving towards in-year payments risks creating significant cashflow pressures, particularly during the transition to the new system. It also obliges taxpayers to regularly monitor and update their tax forecasts, given that self-employed profits, rental income and investment income can fluctuate significantly during the year.

“The vast majority of Self-Assessment payments are already made on time. Any benefits from collecting tax earlier therefore need to be weighed carefully against the additional complexity and administrative burden imposed on taxpayers, agents and HMRC.”

Notes for editors:

1. ATT warns taxpayers could face 'double’ tax payment confusion under proposed Self Assessment reforms