HMRC's tax shake-up: what self-employed workers need to know

The self-assessment system will undergo major overhaul from April 2029, with millions of taxpayers making smaller, more regular payments throughout the year rather than paying in lump sums.

The reform aims to modernise the tax system by collecting payments closer to when profits are made, and could affect up to 3.6 million people who currently make payments on account through self-assessment.

But tax experts warn the current proposals lack important protections, leaving some workers at risk of serious cash-flow issues as the old and new payment deadlines are expected to overlap. 

Here, Which? explains why the upcoming changes are going ahead, and what you can do to prepare if you're affected. 

Which tax deadlines are changing? 

Currently, if you're self-employed, you must submit an annual self-assessment tax return by 31 January and pay any tax owed for the previous tax year. 

For sole traders and landlords with qualifying income over £50,000, since April 2026 you need to follow the new Making Tax Digital (MTD) reporting rules. These require quarterly updates of income and expenses, followed by a final year-end declaration. The deadline for paying any tax owed remains on 31 January.   

On top of this, anyone with a tax bill over £1,000 who has not paid at least 80% of it at source must make payments on account. These are advance payments towards the upcoming year's bill, split into two equal instalments on 31 January and 31 July based on the previous year's earnings. A final payment or refund settles any difference once you've filed your return.

Because the first payment is not due until 10 months into the tax year, and the final balance can take up to 22 months to settle, there is a long gap between when your income is earned and when the tax is collected.

From April 2029, taxpayers making payments on account will move to smaller, more frequent payments throughout the tax year rather than the current two lump sums. The government has not yet confirmed exactly how the new system will work.

In a consultation on the potential changes published by HMRC in August, it said that 30% of the 12 million people who file income tax self-assessment returns make payments on account, meaning up 3.6 million people could be affected.

• Find out more: how to fill in a self-assessment tax return

Why is this changing?

Officially announced in the Autumn Budget, this reform is part of the government’s plan to modernise the tax system and narrow the tax gap – the difference between the tax that HMRC is owed and what it collects.

In the 2024-25 tax year, HMRC’s tax gap was estimated to be around £59bn, or around 6.4% of the tax owed, with small businesses accounting for nearly two thirds of the total.

The move will bring self-assessment taxpayers more in line with traditional PAYE employees, whose tax is collected monthly through their wages. By collecting money closer to the time it is earned, HMRC can reduce the risk of unpaid tax debts if businesses fail, collect tax  sooner to reduce government borrowing, and make sure self-employed workers pay on a similar schedule to employees. 

The Treasury predicts the change will bring in around £1.3bn in its first year, rising to £1.8bn two years later. It has not published details of how it calculated these figures. Alongside this, HMRC expects to hire a further 670 compliance officers by 2029-30 as part of its plan to close the tax gap. 

• Find out more: how to calculate your tax bill

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What does this mean for self-employed taxpayers? 

The Treasury says self-employed workers will not face higher taxes under the proposed payment reforms; they will simply pay what they owe earlier. 

The main benefit of the proposed reforms is that smaller, more regular payments could help you to budget more effectively and avoid unexpected bills at the January self-assessment deadline. But this will only be easier if your income is steady and predictable.  

For example, if you run a business that earns most of its income during a busy Christmas season, you may have to pay tax bills before that seasonal revenue has actually come in.

During the changeover, you may also need to pay tax owed from previous years while making payments towards your current year's bill. The Office for Budget Responsibility (OBR) estimates that this overlap will take £17bn out of self-employed people's cash reserves in 2029-30 alone. 

Under the current system, the delay lets you earn interest on your tax savings or use the cash to keep your business running during quiet months. 

Without this buffer, some taxpayers could find struggle to pay their tax bills. Research from the Association of Independent Professionals and the Self-Employed (IPSE) found that one in three self-employed workers have less than three months' worth of business expenses in savings.

Tax experts have called for measures to make the changeover easier, introducing the changes gradually or giving taxpayers more time to adjust, to reduce the risk of cash-flow problems.

• Find out more: income tax calculator

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How to prepare for more frequent tax bills

The changes are due to be implemented in April 2029. Although that's still a few years away, there are some steps you can take now to help you prepare: 

• Start putting your tax aside now Put money into a dedicated savings pot as soon as you get paid, and tuck extra away during your higher-earning months. This builds a cash buffer so you aren’t caught short when you have to pay more frequently.
• Start your self-assessment tax return early File your return well ahead of the deadline so you know your exact bill months in advance. This gives you plenty of breathing space to budget for what you owe.
• Keep your books up to date Tracking your income and expenses as you go rather than leaving it to the last minute will help you avoid any admin backlogs and gives you an accurate, running estimate of what you owe.
• Chase late payers Unpaid invoices can create cash-flow bottlenecks, especially when tax bills are due. Consider shorter payment terms and follow up on overdue bills immediately to make sure you have income coming in. 
• Watch PAYE coding notices closely If you also earn income through a job or a pension, you should check your tax code regularly. This will help make sure HMRC isn't taxing you twice or calculating tax using out-of-date figures. 
• Talk to your accountant If you have an accountant, speak to them about your future tax liabilities. They can help you map out a transition plan, so you aren’t caught out by overlapping payments.

Find out more: tax reliefs – how to reduce your tax bill

Will these changes affect Making Tax Digital (MTD)?

While the shift to more frequent tax payments and Making Tax Digital (MTD) are separate initiatives, they are closely linked. 

Under MTD rules, sole traders and landlords earning over £50,000 must keep digital records and submit quarterly updates to HMRC, with the threshold falling to £30,000 from April 2027. 

MTD changes how and when you report financial information and expenses, rather than when you pay tax. But tax experts expect the government may use these quarterly digital reports to help calculate and collect more regular tax payments.  

For now, the government is treating the payment reforms and MTD reporting as separate changes while it works out the details of the 2029 rules. 

• Find out more: Making Tax Digital for income tax