Chancellor John Healey’s decision to overhaul the self-assessment tax system has sparked concerns among tax advisers, as they question whether this will harm Britain’s self-employed.

Healey confirmed in his maiden Autumn Budget that the government will change how income tax self-assessment (ITSA) taxpayers make their Payments on Accounts.

Payments on Account are advance payments made by roughly one quarter of self employed Brits, according to Travers Smith. 

Under current rules, this group does not pay tax as they earn income over the course of the financial year, instead paying an estimated portion in advance every six months based on previous year’s earnings.

As tax bills aren’t typically due until ten months after the end of the tax year, self-employed workers can face up to a 22 month delay between earning income and settling the tax owed with HMRC. Payment on Account enables HMRC to close the gap and prevent taxpayers from facing a substantial, delayed bill.

From April 2029, this system will be replaced with smaller, regular in-year payments made as income is earned. 

Creating a cash crunch?

Advisers across the City have clashed over Healey’s decision, with some arguing the change will negatively impact those with “fluctuating incomes” and instead give HMRC “a big cashflow advantage at the cost of taxpayers”.

“Bringing forward Self Assessment payments might seem harmless because the amount of tax people pay stays the same, but it could leave many short of cash,” said David Portman, tax partner at Lubbock Fine.

“Lawyers and accountants are likely to be among the hardest hit because the amount of tax they pay each year can be significant… as well as those with significant savings income.”

Other advisers noted it will create a “significant cashflow challenge” for tradesmen as well as white collar professionals, including plumbers, electricians and farmers, alongside investors and landlords, and could cause some businesses to close their doors.

Andy Oury, tax partner at Oury Clark, said: “It’s been my fear that accelerated payments was always the grander design… That will be a one-off working capital transfer from the bank accounts of plumbers, cleaners and coders into the Exchequer, dressed up as helping people budget and avoiding larger tax bills that are harder to pay.”

“But the transition will be brutal. It will mean roughly eighteen months of tax squeezed into twelve. This could be a solvency event for some.”

Advisers urged the government to consider delaying the proposal or implement a phased introduction, to “allow them to gradually bring their payments forward” and stop workers running out of capital in 2029.

The case for HMRC

The Office for Budget Responsibility (OBR) estimates the measure to generate £1.6bn on average annually from the 2029/30 tax year, driven partly by reductions in debt losses and by bringing forward the timing of tax recovery.

“The announcement signals a continued focus on strengthening HMRC’s ability to recover unpaid tax, particularly from individuals who have the means to settle their liabilities but repeatedly fail to engage,” said Andy Wood, barrister at Tax Barrister UK.

Tom Everett, tax partner at PwC, added the changes may “make budgeting easier” for some taxpayers, by bringing payment closer to when income is actually earned.

But many advisers questioned what safeguards HMRC will implement to protect taxpayers, as the Budget failed to provide details on how the change will be brought into effect.

Adam Jefferies, Director in the Private Client Tax team at PKF Littlejohn: “With key details still unclear, there are concerns over increased red tape and taxpayers being hit with bills based on out-of-date information.”