A significant change to the collection of UK income tax is set to take effect from April 2029, as announced in the recent Budget. Under the upcoming proposal,
HM Revenue and Customs (HMRC) will begin collecting self-assessment income tax owed by individuals who also have Pay As You Earn (PAYE) income through adjustments to their tax codes.
This move, described by the government as aiding taxpayers in managing their liabilities more efficiently, will alter the timing and method of tax payments for millions. A formal consultation is scheduled for early 2026 to finalise the operational details.
Overview of the Proposed HMRC Changes
From April 2029, individuals who earn both PAYE and self-assessment income will see more of their tax collected throughout the tax year. HMRC intends to adjust PAYE coding notices to collect tax on self-employment and other self-assessment earnings monthly, rather than relying on large payments after the end of the tax year.
The Treasury has stated this change is meant to make tax payments 'more timely and manageable' for taxpayers, with the consultation phase aiming to address practical challenges and gather professional input before implementation.
Timeline and Implementation Details
The government has stated that the new collection regime will take effect in April 2029. A consultation process on how to deliver in-year payments will begin in early 2026. This consultation will also examine ways to modernise payments for those with only self-assessment income.
Currently, tax on self-employment and non-PAYE income is typically paid as a balancing payment the following January, or in two instalments known as payments on account.
HMRC reports that sizeable numbers of taxpayers miss these deadlines, generating a backlog of underpayments.
How Self-Assessment and PAYE Currently Work
At present, PAYE automatically deducts income tax for employees and pensioners, while self-assessment covers income such as self-employment earnings and rental profits. Taxpayers who fall into both categories file annual returns and pay any outstanding tax in a lump sum, or through two payments on account if certain conditions are met.
The current system limits the amount of tax that HMRC can collect through coding adjustments to £3,000 per year in most cases, although this can be higher in certain circumstances. Importantly, HMRC cannot adjust tax codes to collect self-assessment liabilities without agreement from the taxpayer.
Who Will Be Affected by the New System
The changes will primarily impact individuals who receive both PAYE and self-assessment income. This includes people who are employed but have self-employed work on the side, semi-retired individuals with pension income and freelance earnings, and some contractors.
Additionally, the move may affect those whose clients apply PAYE to some of their work due to regulatory concerns. Taxpayers with only self-assessment income will be subject to a separate consultation regarding potential future changes.
Financial and Administrative Implications
Moving self-assessment payments to an in-year basis via PAYE could ease cash flow management for some but presents new complexities in cases where additional income is irregular or seasonal. For example, those earning fluctuating amounts may face deductions before income is received.
The government maintains that the total tax paid will not change, but the timing of payments may affect individuals' finances. According to HMRC, about 1.1 million taxpayers failed to make their required payments on account in January 2024, highlighting ongoing compliance challenges.
Final Summary
The planned shift towards collecting self-assessment liabilities via in-year PAYE adjustments marks a significant evolution in the UK tax system's approach to mixed-income earners. While HMRC argues the change will support taxpayers in managing their obligations, concerns about practicality, fairness, and the administrative capabilities of existing systems remain prominent.
As the 2026 consultation approaches, taxpayers and professionals are advised to monitor developments closely and consider how the proposed measures might affect individual and business finances. For those seeking further context or guidance on evolving tax processes, insightful tools and updates are available through platforms such as the Pie app.
