The UK is contemplating a major overhaul of its tax system, with Labour and HM Revenue and Customs (HMRC) consulting on plans that could require self-employed individuals and landlords to pay income tax on a monthly basis. This potential change, aimed at aligning the UK with tax regimes in countries like Australia, Canada, France, Germany, and the United States, could be implemented as early as April 2030.

The proposed system would base monthly tax payments on an individual's previous year's tax return. HMRC states that this approach could help taxpayers manage their finances better by spreading payments more evenly throughout the year, thereby reducing the likelihood of accumulating significant tax debt from large, infrequent bills. The department acknowledges that the incomes of self-employed individuals and landlords can fluctuate, and is actively seeking feedback on how such reforms could be practically implemented.

HMRC has emphasized that while the timing of tax collection would change, the total amount of tax paid annually would remain the same. For individuals whose tax liability is expected to differ significantly from the previous year, provisions would allow them to adjust their forecasts. Refunds would be issued if overpayments occur.

Rationale Behind Monthly Payments

Currently, self-employed individuals and landlords settle their tax obligations through self-assessment returns and, in many cases, 'payments on account.' These payments on account are typically made twice a year, representing an advance on the following year's tax bill. For those who pay these amounts in a lump sum alongside their main tax return, the financial burden can be substantial. Furthermore, accurately estimating these advance payments can be challenging given the variable nature of freelance and rental income.

Data from HMRC indicates that missed payments on account are a recurring issue. In January 2025, 1.1 million such payments were missed, with a significant portion of these eventually becoming debt. The proposed monthly payment system is seen by HMRC as a way to mitigate this problem by ensuring more consistent tax contributions throughout the year.

Concerns and Criticisms

Despite the potential benefits of improved cash flow management for the tax authority, the proposal has already drawn criticism regarding its potential impact on self-employed individuals and landlords. Concerns center on the strain such a system could place on cash flow, particularly for those in seasonal industries or those experiencing income volatility. A monthly tax payment could become a burden during leaner months, making it difficult to cover business expenses or unexpected costs.

Organizations representing the self-employed have voiced apprehension. IPSE, the Self-Employed Association, argues that a system designed for regular, salaried employees does not reflect the reality of freelance income, which can vary significantly from month to month. They expressed concern that an additional monthly payment obligation could add undue complexity and overwhelm small businesses.

Similarly, Charlotte Baroukh, head of tax at Pie, stated that forcing individuals without the security of a monthly salary to pay tax monthly could severely impact their ability to manage business costs and property maintenance. The potential for inevitable overpayments and underpayments due to fluctuating incomes was also highlighted as a source of further uncertainty.

Broader Tax Landscape

This consultation occurs against the backdrop of the ongoing implementation of Making Tax Digital (MTD), a regime that requires certain businesses to maintain digital tax records and submit information quarterly. MTD for income tax affects self-employed individuals and landlords with a turnover or gross income exceeding £50,000 annually. However, recent data suggests a slow uptake, with fewer than half of the estimated 864,000 individuals and landlords required to register having done so by the current deadline.