HMRC alert: Self-employed and landlords set to face new Labour monthly payment tax system

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Self-employed workers and landlords could be required to pay tax every month under Government proposals

Labour is examining plans which would require self‑employed workers and landlords to pay tax every month from April 2030, in a major shift to how millions manage their finances.

Under the proposals, HM Revenue and Customs (HMRC) would calculate monthly payments using an individual’s previous year’s tax return.

The reforms are expected to apply only to those earning above a threshold that has not yet been set.

The move forms part of the Government’s wider push to narrow the UK’s £36million tax gap by collecting tax closer to the point at which income is earned.

Tax specialists warn the changes could create significant cash‑flow pressures for freelancers and landlords whose earnings vary throughout the year.

Zena Hanks, a partner at Saffery, said: “For the self‑employed, this is going to cause huge disruption to cash flow.

“The principles are sound, ensuring tax is paid closer to income being received, but you can’t predict future income easily.”

She added that some taxpayers could end up overpaying tax and waiting for refunds from HMRC, while others may face higher monthly bills during periods when their business income has fallen.

Joseph Adunse, tax director at Moore Kingston Smith, echoed those concerns.

“You’ll end up with underpayments, or more concerningly, overpayments,” he said.

“Paying tax more frequently when you don’t have cash to hand can be very difficult. PAYE is used for a guaranteed salary, but this income is not the same.”

He warned that forecasting annual income using historic returns would be inaccurate for many self‑employed workers.

At present, eligible self‑employed taxpayers make payments on account twice a year, in January and July, based on their previous year’s tax bill.

The proposed system would instead estimate the following year’s liability using historic income and divide it into 12 monthly instalments.

For example, someone whose last tax return showed earnings of £30,000 could be required to pay around £290 a month.

The reforms could be particularly challenging for people with seasonal income, who may have to continue making monthly payments during periods with little or no earnings.

Those with side businesses earning more than the £1,000 trading allowance could also be drawn into monthly deductions on that additional income.

Taxpayers would still be responsible for notifying HMRC if their expected income changes, to reduce the risk of under‑ or over‑payments.

The consultation comes as the Government continues expanding its Making Tax Digital programme.

Since April, freelancers earning more than £50,000 have been required to keep digital records and submit quarterly updates using compatible software. The threshold will fall to £30,000 next year and then to £20,000 from 2028.

Making Tax Digital has faced repeated delays, four postponements so far, and has exceeded its original budget by around £1billion.

An HMRC spokesman said: “Spreading tax payments more evenly through the year could help taxpayers avoid unexpected lump‑sum bills and reduce the risk of falling into tax debt.”