SELF-EMPLOYED small and micro business owners have said incoming reforms to the way they are required to pay their tax are “the wrong decision” and will “add complexity” for firms already tied up by red tape as a Government consultation goes live.
In its 2025 Budget, the government announced that from April 2029, Self Assessment taxpayers who also have PAYE income will need to pay towards their Self Assessment tax bill through their regular PAYE payments, rather than waiting until later in the year or until they file their tax return.
Paying in smaller, more frequent instalments, the Government believes, will smooth out tax payment and support better planning and budgeting, and avoid taxpayers having to pay larger, infrequent and sometimes unexpected bills.
The government is now consulting on how to deliver this change to protect and support impacted taxpayers and help them transition to new payment timing.
Tax gap
The consultation goes live following official data published yesterday showing the tax gap — the difference between what UK tax is expected to be paid and was actually paid — was 6.4% for the 2024 to 2025 tax year.
HM Revenue and Customs (HMRC) collected £865.2 billion in 2024 to 2025, representing 93.6% of all tax due. This means an estimated £59.2 billion was unpaid that tax year.
The tax gap data revealed that Corporation Tax accounts for a 35% share of the total tax gap, with small businesses representing the largest customer group of the tax gap (62%) — and that around half of the small business tax gap is for Corporation Tax.
Key changes
The Government claims the current system is structured in such a way that there is a greater risk of individuals falling into tax debt.
For example, approximately 1.1 million Payments on Account were missed in January 2025 with the taxpayer falling into tax debt in 75% of cases, resulting in penalties and interest.
Under the proposed system, individual taxpayers with both Self Assessment and sufficient PAYE income will see a handful of key changes:
- HMRC will use your most recent tax return to forecast your payments
- where possible, HMRC will update your tax code, which will determine how much Self Assessment tax is collected through your PAYE income alongside your existing tax on your employment or pension
- if taxpayers know their tax will be significantly higher or lower than forecast, they will be able to make their forecasts and in-year tax payments more accurate by contacting HMRC by using an easy online form
- taxpayers will file a tax return, as usual, by 31 January following the tax year alongside paying any remaining tax still due
For employers, where possible HMRC will update tax codes that will inform how much Self Assessment tax is to be collected. Employers will also continue to deduct tax from their employees for each pay period
The government has said it would also like to explore the potential for comparable reforms for other Self Assessment taxpayers by increasing the frequency of Payments on Account.
For taxpayers, it claims, this would smooth payments across the year, helping them to avoid large, infrequent payments that can be difficult to manage.
It says no decisions have yet been made about potential changes to payments for this group of Self Assessment taxpayers.
Wrong forecasts
Steven Mather, Lawyer and Director at Leicester-based Steven Mather Solicitor, is worried that the changes will result in more admin, not less — and also questioned the ability of HMRC to respond to any queries.
He said: “Smoothing tax payments sounds taxpayer-friendly until you remember whose cashflow is being smoothed. Small businesses are being asked to hand their money to HMRC sooner, based on a forecast.
“If HMRC’s forecasts are wrong, small businesses will be the ones chasing refunds or scrambling to top up, and that’s more admin, not less.
“The promise of ‘support and guidance’ needs to be real, because owner-managers don’t have a finance department to absorb the friction — and getting a response from HMRC right now feels close to impossible.”
More complexity
Matthew Knight, Chief Freelance Officer at Freelancing.Support, said “this move feels like it risks adding more complexity, rather than simplifying how freelancers pay tax”.
He continued: “With many of the self-employed already making mistakes in their self-assessment, leading to a significant portion of the UK’s tax gap, we need to make things easier to understand and pay tax, and better education and accessible tax advice for small businesses.
“There’s already a steep learning curve when it comes to self-employment, and tax can feel overwhelmingly complex and anxiety-inducing for many, especially those in their first year.
“We desperately need simplification of taxation, along with better education and accessible and affordable tax advice for small businesses and freelancers, to help the ‘backbone of Britain’ bear any additional burden.”
More obligations
Evren Ergin, Founder And Developer at proptech firm, ValuQ, believes the Government has got this wrong: “As someone running a business, this is the wrong direction. Smoothing tax payments is a fine aim. The reality for a micro business is one more system to learn, reconcile and get wrong.
“Admin is regressive. A national chain has a finance team to absorb it. A self-employed plumber, a one-branch estate agent, a sole-trader bookkeeper absorbs it personally, at night, after the actual work.
“Every layer of red tape quietly tilts the field toward the big and away from the small. If the goal is fewer nasty surprises at tax time, the answer is simpler rules and better tools, not more obligations bolted onto people already doing three jobs at once.”
Even more complicated
Steph Briggs, Freelance Marketing Consultant at Girvan-based Steph Briggs Marketing, also has concerns.
She said: “The intention of smoothing tax payments is understandable, but this feels like making the system even more complicated than it needs to be.
“For many taxpayers and SME owners, the challenge isn’t when tax is collected, it’s understanding an increasingly complex tax system. The focus should be on simplification and transparency rather than adding another layer of complexity.”
Helen Llewellyn, Founder at Elemental Tribe, said the changes don’t take into account the reality of self-employed income: “How will payroll and tax codes cope with the potential fluctuations or seasonality of self-employment? They won’t. It will be another fine mess they got themselves into.”
Photo by 愚木混株 Yumu on Unsplash
