UK government consults on plans to bring forward income tax payment dates

• From April 2029, income tax self-assessment (ITSA) taxpayers who are also within the PAYE regime, will have their ITSA payments deducted through PAYE each payday (provided they have sufficient PAYE income).
  
  
• For all other ITSA taxpayers, the government is consulting on accelerating the date on which payments on accounts (PoA) are due, possibly moving to in-year monthly or quarterly payments, although the proposals are less concrete than the PAYE ones.
  
  
• For both measures, the proposed payments will be based on the taxpayer's most recent tax return. This will be the return for the tax year two before the one in question (so, for example, for 2030/31 the payments will be based on the 2028/29 return). However, the payment schedule will be able to be changed if there is more up to date information available.
  
  
• Carried interest returns have, since 6 April this year, been within the income tax framework. Their lumpy and unpredictable nature can give rise to cashflow difficulties in the context of rules which require in-year tax payments.
  
  
• Although the consultation does not expressly deal with carried interest returns, it does ask for views on PAYE taxpayer safeguards and, in the context of PoA reform, what methodology to use and how to support taxpayers whose income changes.
  
  
• It will be important that the private capital sector engages with the consultation process, particularly to encourage HMRC to address potentially difficulties in the context of carried interest.

Currently, individuals within the UK's income tax self-assessment ITSA regime, are required to file their tax return and pay their income tax liability by 31 January after the end of the tax year (6 April to 5 April). However, in many cases, the PoA rules will apply, so that they must make two advance tax payments, based on the prior year's liability.

The first advance payment is due by 31 January of the relevant tax year (i.e. 10 months into the relevant tax year) and the second on the following 31 July (i.e. 3 months after the relevant tax year). When the executive files their tax return on the following 31 January, there is a true-up between the actual tax due and the tax paid under PoA.

Whether an individual falls within the PoA regime for a tax year depends on their tax position for the previous tax year. Essentially, an individual is within the PoA regime for a tax year if they have at least £1000 of ITSA liability and, for the previous year, less than 80% of their income tax liability was collected by deduction (e.g. PAYE).

Since 6 April, carried interest has been brought entirely within the UK's income tax regime. This is potentially problematic for executives, as, although the PoA rules work well for regular income streams, carried interest tends to be lumpy and unpredictable. This issue was repeatedly raised with HMRC by the private capital sector during the consultation process for the new carried interest regime, but no provisions were introduced to address it.

Following on from an announcement in last year's Budget, the government has launched a consultation on making earlier ITSA payments. It envisages that having smaller, more frequent tax payments made closer to the time income is earned, will help modernise the tax system, close the tax gap and allow taxpayers to manage their tax liabilities.

There are two sets of proposals, one relating to taxpayers who are within the PAYE regime (as well as ITSA one), and one relating to those who are solely within the ITSA regime.

ITSA payments through PAYE

From April 2029, ITSA taxpayers with sufficient PAYE income will be required to make ITSA payments through PAYE each payday. The amount of the payments will be based on the taxpayer's last tax return.  This will be the return for the tax year two before the one in question (so, for example, for 2030/31 the payments will be based on the 2028/29 return). However, the taxpayer will be able to update the payment schedule using more recent information so that it more accurately reflects their expected tax liability for the year. Under current rules, it is possible for ITSA taxpayers to elect for a portion of their tax liability to be collected via the PAYE system provided certain conditions are met, but this is only a voluntary scheme.

The amount of income tax that can be collected via PAYE is currently capped at 50% of PAYE income. However, the government is seeking views on whether any other taxpayer safeguards should be introduced and if there are any specific groups of taxpayers for which a different cap would be helpful.

The consultation is unclear on what happens when there is not enough PAYE income from which to deduct all of a taxpayer's ITSA payments. On one reading, the obligation to deduct would fall away entirely, with the full amount of the ITSA payment being payable outside of the PAYE regime. However, on another reading, only the excess ITSA payments (i.e. above the PAYE income cap) fall outside the deduction requirement and are payable separately. In this regard, the government is asking for ideas on how to support taxpayers who might, within a tax year, move in and out of paying their ITSA liabilities via PAYE.

All other ITSA taxpayers

The proposals for reform of the PoA rules for all other ITSA taxpayers are less concrete than those for ITSA payments through PAYE, with the government, at this stage looking for options for reform. That being said, the consultation document can be read as indicating that the government has already decided that PoA payment should be accelerated, and it is just the methodology for doing so that is asking for views on. In this regard, the government suggests that monthly or quarterly payments could be introduced or the timing more closely aligned with ITSA payments through PAYE.

Helpfully, the consultation expressly recognises that ITSA income can be irregular, and looks for views on how to avoid taxpayers having to make payments that do not reflect their income patterns.

The consultation closes on 4 August 2026.

Given the state of the public finances, it is unsurprising that the government is looking to bring forward tax receipts.

The proposals represent a significant acceleration of ITSA tax liabilities and have the potential to introduce a good deal of additional complexity, especially for employers who will be required to build employees' income from other sources into their PAYE compliance processes.  

It is therefore helpful that the government has built in a long lead time for the reforms to come into force and that it is looking for views on how to address potential problems. In this regard, the government appears attuned to issues with variable income receipts, but it is less clear that cashflow difficulties (where, for example, an expected large carried interest payment is received late in a tax year) are on its radar.

In addition, for private capital managers (and other businesses) established as LLPs, the acceleration of members' PoA payment obligations could make cash management more difficult. This will be the case where it is the firm's practice to (i) retain a proportion of members' monthly drawings to fund those members' liabilities to make PoAs, and (ii) use that cash in the business during the period between its retention and the due date for the relevant PoA to be made. 

It will be important that the private capital sector engages with the consultation process, particularly to encourage HMRC to tackle potentially difficulties in the context of carried interest.  Hopefully, HMRC will be more receptive to the sector's submissions in relation to the PoA regime and carried interest than it has up until now.

The Travers Smith Tax Policy Team will respond to the consultation. Please get in contact if there are any points that you would like us to raise with HMRC.