Understanding the Reform
Under current rules, those with Self Assessment income (self-employment, property income, investment gains, etc.) often pay large sums by 31 January after the tax year ends—and sometimes make two Payments on Account (POAs). This timing can cause budgeting issues, late payments, and penalties. Under the changes announced in June 2026, starting April 2029, taxpayers who have both PAYE income (employment or pension) and Self Assessment income will start paying more of their annual Self Assessment tax liability during the year, via adjustments to PAYE codes. (gov.uk)
Who’s Affected?
- Mixed-income individuals: salaried workers who also freelance, rent property, have substantial investment returns.
- Taxpayer with sufficient PAYE income to absorb additional tax via the PAYE code.
- Those who currently make most of their Self Assessment payments after the tax year finishes.
How It Will Work
- HMRC will forecast your liabilities using your most recent tax return.
- Your PAYE code will be adjusted so part of the Self Assessment tax is collected through normal payroll (or pension) deductions.
- If your tax liability changes significantly (e.g. new income source or business losses), you’ll be able to adjust forecasts via HMRC’s platform.
- Regular file by 31 January after the tax year for any balancing payment.
Example Scenario
Consider John, who has a salaried job and also earns £10,000 yearly as a freelance graphic designer:
- Today: John waits until after the year ends to find he owes a large tax bill, exacerbating budget strain.
- From April 2029: HMRC anticipates his freelance income, and increases his PAYE tax code, gradually collecting more across the year. His net take-home pay will adjust, but without a big lump sum due in one go.
Benefits & Risks
Benefits:
- Budget-friendly: tax is spread, so less chance of surprise debt or late-payment penalties;
- Reduced cashflow shock around January.
- Better financial planning.
Risks/challenges:
- Forecasting errors can lead to under- or over-collection;
- For seasonal workers or those with fluctuating incomes, estimates may be harder.
- Need to monitor and update HMRC’s forecasts to avoid overpayments or disputes.
What You Should Do Now
- If you’re a mixed-income earner, start reviewing latest tax returns to understand patterns in income sources.
- Keep detailed records of income types, dates, and amounts—helps accuracy.
- Use HMRC tools to estimate liabilities ahead of 29/30 January so you can flag unusual changes.
- Consult your payroll provider or agent about how the PAYE code change could impact cashflow.
Broader Implications for Tax Planning & Compliance
This shift incentivizes taxpayers to anticipate income more accurately and encourages budgeting throughout the year. Businesses and agents need to prepare for clients needing continuous forecasts rather than late-year catch ups. Also aligns with digitalisation trends like Making Tax Digital, though this reform is payments-focused. See below for related policy context.
Conclusion
The new reform launching in April 2029 represents a significant movement toward smoother and fairer tax payment structures in the UK. If you combine employment income with rent, freelance work, or investments, you’ll need to plan earlier. By using forecasting, tracking all income, and staying engaged with HMRC’s updated systems, you can avoid penalties and make your tax payments more manageable.