In his Autumn Budget, Chancellor John Healey announced plans to overhaul the payments-on-account system. Will the changes make life easier for self-employed people?
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After John Healey's first Autumn Budget as chancellor, HMRC may finally be starting to understand what it means to work for yourself.
Amid plans to raise taxes on landlords, support first-time buyers and ease business rates, Healey's first fiscal update in October briefly mentioned changes to the administration of self-assessment income tax, due to begin in 2029.
The revamp finally promises to fix the controversial payments on account system. It has long burdened business owners and freelancers like me, requiring us to estimate half our earnings and pay that amount before the money even reaches us.
But doubts remain about whether the reforms go far enough. They change when the tax is paid, but do not solve the basic problem: having the money ready when the bill arrives.
What are payments on account?
If your self-assessment tax bill exceeds 1,000 and you have not already paid more than 80% of the tax through your tax code, HMRC will add payments on account to what you owe.
These payments count toward the current tax year's bill, based on what you owed the previous year.
Half is due on 31 January; the remaining amount must be paid by 31 July.
If your tax bill for 2025/2026 came to 3,000, you would have needed to pay 4,500 by midnight on 31 January 2027.
That amount combines the 3,000 owed for the previous financial year with a 1,500 first payment on account toward your 2026/27 tax bill, calculated from your earlier earnings.
A second payment on account, amounting to 1,500, will be due on 31 July 2027.
Many accountants, tax specialists and HMRC say this arrangement helps self-employed people. Filing your self-assessment soon after the tax year ends in April gives you time to budget for the payments.
If you stay organised, the schedule gives you from April through January to cover half of your current tax bill with the first payment-on-account instalment. The remaining six months, until the end of July, cover the balance.
If you expect your earnings to drop, you can ask HMRC to reduce your payments on account. Pay too much and you can claim a refund, but underpaying may lead to an interest charge.
HMRC may impose a late-payment penalty of 5% once tax is 30 days overdue. Interest also starts accruing at 7.75% from the day after the due date, so delay gets expensive quickly.
For anyone running a business and struggling to keep paperwork in order, the current payments account system can take a serious bite out of their finances when the tax bill arrives in January or July.
What's changing with payments on account?
Since late 2025, the government has been consulting on possible changes to the payments on account system.
In his Budget, Healey confirmed plans to reform the system. Under the proposed self-assessment changes, self-employed people reporting and paying tax on untaxed income would make smaller, more frequent payments rather than face large bills that can be difficult to cover.
Starting in April 2029, self-employed business owners like me can pay smaller amounts regularly during the year instead of facing one large bill for income earned long ago.
Instead of waiting for self-assessment season in January and the following July's payments-on-account deadline, my accountant and I can estimate what I owe, pay voluntarily during the year, and see how those payments compare with the forecasted bill.
HMRC plans to offer more online services and app-based tools to support taxpayers.
Will the payments on account changes help the self-employed?
The changes should make self-assessment a little easier by removing some of the usual hassle.
It makes a large payment-on-account bill less daunting because I can spread the cost over smaller payments.
The government has not said when those payments will be due. If the scheme is set up well, though, it should make it easier for me to budget for and manage my tax bill throughout the year.
Smaller payments would be easier on my wallet, but the changes still leave one problem untouched: cash flow.
Payments on account are based on the assumption that this year's earnings will match last year's. That does not work well for freelancers, whose income can rise and fall.
Even if I earn the same amount, payment may still arrive late. That uncertainty leaves me - and other self-employed people - without cash when we need it. Paying more regularly would at least let me make smaller contributions.
Harvey Dhillon, chief executive of accountancy firm Zmartly, said the change was welcome, but payments on account would remain. What is being removed are the large twice-yearly payments due in January and July.
Starting in April 2029, payments on account will be smaller and taken automatically throughout the year. This will apply to everyone who makes them, not just self-employed people, and the calculation will still use the previous year's tax.
That mainly helps anyone who fails to set money aside for the bill. I often see this with online sellers: strong sales and steady cash flow can obscure how little profit they actually made.
Dhillon's point is that the same tax will come out of your account earlier. The payment schedule remains undecided, and no part of the proposal has become law.
That creates a concern for me and other self-employed people.
Dhillon explains the catch: during the changeover year, the final payment under the old system arrives alongside the first payments under the new one. Start setting money aside well before then.
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