UK and International Tax news

Tax Update 2026: Consultation on Timely Payments and ITSA

Tuesday 7th July 2026

The government has published a consultation on implementing more timely payment in Income Tax Self Assessment, following the government’s earlier announcement at Budget 2025 on changes to the timing of payments in ITSA from April 2029.

The aim is to smooth out tax payment and help taxpayers avoid unexpected or large tax bills. Late payments are in some cases linked to the current timing and structure of payment arrangements (with delays of up to 22 months from when they receive income to when the relevant tax is paid), which can be difficult for some taxpayers to budget and pay on time. This means there is a greater risk of individuals falling into tax debt.

Under the current system, approximately 1.1 million payments on account were missed in January 2025 with the taxpayer falling into tax debt in 75% of cases. Tax debt can be costly for individuals, as it can lead to penalties and interest. If a final self assessment tax bill is paid late, there is a penalty of 5% of the tax unpaid at 30 days, six months and twelve months, plus interest on the amount owed. By paying more frequently in smaller, easy to manage payments, the risk of additional costs associated with debt for individuals should decrease.

By comparison with current self assessment arrangements in the UK, many other countries including the US, Canada, France, Germany and Australia collect tax much sooner.

Currently, the amount of tax that can be collected through PAYE in any pay period is capped at 50% of PAYE income. This cap is intended to help protect individuals’ net income. The government is testing through the consultation whether there are specific groups for whom a different threshold might be appropriate. For example, some taxpayers may prefer to have this threshold raised to enable them to have their projected ITSA liabilities collected automatically through PAYE.

HMRC estimate that there are 9.1 million individuals who file a self assessment tax return and do not meet the criteria to have some of their ITSA liabilities collected through PAYE. Of these, around 2.5 million taxpayers make POAs. The remainder make a single payment in January following the relevant tax year, or have no ITSA tax liability to pay. Some taxpayers in ITSA may be due a repayment.

Taxpayers with ITSA liabilities over £1,000, who have not paid 80% of their liability at source, such as through PAYE, are required to make two equal POAs due by the end of January and July. POAs are calculated using known ITSA liability, typically based on the taxpayer’s ITSA tax return from the previous year. Any remaining balance is settled through a balancing payment which is due by 31 January following the end of the tax year, at the same time as filing.

The government wishes to increase the frequency of POAs from April 2029, with POAs paid in the same year as the taxable activity through direct ITSA POA. This could be achieved through, for example, monthly or quarterly payments, aligning timing more closely with ITSA payments through PAYE.

The government recognises that ITSA income can be irregular. It is therefore seeking options to balance the potential for more regular payments with avoiding taxpayers having to make payments that do not reflect their income patterns. Direct ITSA POAs could be forecasted, based on past self assessment returns, with taxpayers able to update their forecasts efficiently. Taxpayers would report their actual liability and reconcile their payments with a balancing payment or repayment from HMRC when they complete their self assessment return, as they do now.

The consultation sets out the government’s key areas of focus for changing the timing of ITSA payments, including:

  • the proposed design of reforms for ITSA taxpayers with PAYE income who will be required to pay their forecasted ITSA liability in-year from April 2029
  • the potential for more timely payment for other ITSA taxpayers, such as those with ITSA income only
  • specifics on design, how and when to collect payments, and safeguards needed to protect taxpayers
  • support and guidance required for taxpayers and their representatives to help them transition to new payment timing

From April 2029, the government will require ITSA taxpayers with sufficient PAYE income to make ITSA payments through PAYE each payday, divided into equal payments through the year. The forecasted liability payments will be based on the taxpayer’s last filed ITSA return, as this will be a crystallised or complete picture of liability. Taxpayers will be able to update their forecast using more recent information to ensure it remains an accurate reflection of their expected tax bill.

The consultation runs for six weeks from 23 June to 4 August 2026 and a summary of responses will be published in Autumn 2026.

If you would like more detail on the consultation, please contact Keith Rushen on 0207 486 2378.

 

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