HMRC has quietly launched one of the most consequential consultations of 2026. Published on 23 June and closing on 4 August, the Timely Payments in Income Tax Self Assessment consultation sets out a plan to fundamentally restructure when the UK’s 12 million self assessment taxpayers settle their income tax bills. The target date is April 2029. The mechanism: collect ITSA liabilities through PAYE, payday by payday, for anyone who has sufficient employment income. If you are a CFO, a director, a partner in an LLP, or a business owner with a significant PAYE payroll, this is not a technical detail to file away. It changes cash flow, payroll administration, and the way your finance team manages liquidity — potentially for thousands of people on your books.
What the Consultation Actually Proposes
The current system has operated in broadly the same form for decades. ITSA taxpayers with a liability over £1,000 (who have not had at least 80% collected at source) make two Payments on Account — one by 31 January, one by 31 July — based on the prior year’s liability. Any balancing payment falls due the following January. The result is that tax on income earned in April of one year may not be settled until January more than 20 months later. HMRC describes this as a gap of “up to 22 months” and the consultation presents it as a structural flaw that creates bill shock, fuels tax debt, and sits at odds with practice in Canada, the US, France and Australia.
The proposed fix has two limbs. First, for approximately 2.1 million individuals who have both ITSA income and sufficient PAYE income, payments on account will from April 2029 be collected through PAYE each payday — as equal instalments based on the previous year’s filed return, with taxpayers able to update their forecast in-year. Second, the consultation opens a broader conversation about whether the remaining 9.5 million ITSA-only taxpayers (of whom around 2.5 million currently make POAs) should also be moved to more frequent direct payments, though the mechanics for this group are less settled.
Critically — and HMRC emphasises this — the total amount of tax due does not change. What changes is the timing. Earlier payment means smaller individual instalments spread across the year rather than two larger lump sums. Whether that is genuinely beneficial will depend entirely on the individual’s income pattern and cash management.
Why This Lands on the CFO’s Desk
At first glance, this looks like a problem for individuals rather than corporates. Look again. Three groups of people in your organisation will be directly affected, and the administrative consequences land squarely with your payroll and finance teams.
Owner-managers and executive directors. Any director with a meaningful salary drawn through PAYE alongside dividend or self-employment income — a common structure for SME owners and PE-backed management teams — sits squarely in scope. If their ITSA liability is currently managed via January and July POAs, from 2029 that liability will instead be deducted from their salary each month. Their net pay will fall. That is a conversation your remuneration committee should anticipate, not discover in April 2029.
LLP members drawing through the firm’s payroll. Following the BlueCrest Supreme Court ruling on salaried members — covered in our post this week — many LLPs are already reassessing how income is characterised and distributed. If a salaried member draws through PAYE, they are precisely within scope of the timely payments proposals.
Your employer payroll operation. The consultation is explicit that collecting ITSA liabilities through PAYE will increase the volume and frequency of tax code changes issued by HMRC. Employers will need to operate those amended codes, answer employee queries about reduced take-home pay, and potentially face a shift from quarterly to monthly PAYE remittance if the additional ITSA deductions push them above the £1,500 threshold. The consultation asks specifically whether the quarterly payment threshold for employers should be adjusted. Your payroll provider needs to know this is coming.
The Cashflow Arithmetic for Individuals
Consider a director drawing £120,000 gross salary through PAYE who also has £80,000 of additional income from dividends and consulting. Under current rules, they make two POAs of roughly £16,000 in January and July, with any balancing payment the following January. Total ITSA cash outflow is structured around three predictable annual dates and can be planned accordingly — invested, held in a separate account, timed around bonus receipts.
Under the proposed regime, HMRC codes the £16,000 per POA equivalent into their PAYE tax code and deducts it ratably across 12 monthly payslips — approximately £2,667 per month of additional deduction. The director’s net salary falls by that amount each month from April 2029 onwards. Balancing payment and reconciliation still happen in January, but the lump sums are replaced by continuous deduction. For individuals who rely on the January/July cycle to manage working capital, invest the float, or simply budget around bonus cycles, this is a material change in cash flow — even though the tax bill is identical.
The consultation acknowledges this creates a transitional problem: for taxpayers moving to the new system, the first year will see instalments due under both the old and new schedules simultaneously. HMRC is seeking views on how to smooth this, but it has not yet proposed a specific transition mechanism.
The Self-Employed: Seasonal and Irregular Income Remains Unresolved
The harder problem is the ITSA-only population — the genuinely self-employed, sole traders, and partnership income recipients who have no employer to deduct PAYE. For this group, the consultation does not propose mandatory in-year PAYE collection (there is no employer to collect from). Instead, it explores whether more frequent direct POAs — possibly quarterly or monthly — could be required, aligned with the Making Tax Digital for Income Tax quarterly reporting cycle.
This is where seasonal and irregular income creates genuine complexity. A farmer, a construction subcontractor, a film production company, a hospitality business — any organisation where income is heavily front-loaded or back-loaded during the year — faces a problem if tax is required quarterly based on year-to-date projections. The consultation acknowledges the risk of over-collecting from seasonal traders and asks for views on safeguards. But the mechanism for self-correction in-year is not yet designed. This is precisely the kind of complexity that professional bodies like ICAEW’s Tax Faculty and the Chartered Institute of Taxation will be pressing hard on in their consultation responses.
The Interplay With MTD and Mandatory Direct Debit
This consultation does not stand alone. HMRC has launched three major structural reform consultations in rapid succession. The Timely Payments consultation (closes 4 August) sits alongside the mandatory Direct Debit consultation for VAT and PAYE liabilities (closing 16 August) and the broader MTD for Income Tax rollout, with the first quarterly reporting deadline for 7 August 2026 already upon mandated businesses.
Together, these three initiatives point to a single strategic direction: HMRC wants tax collected closer to real time, with less taxpayer discretion over timing, and with direct links into employer and banking infrastructure. For large employers and finance teams, this is a convergence of administrative burden — multiple new reporting obligations, altered cash flows for key individuals, and payroll systems that need to adapt to a new category of PAYE deduction that did not previously exist.
The MTD for ITSA quarterly update obligation is relevant here because the consultation specifically asks whether MTD quarterly data should be used to inform timely payment forecasts. If HMRC can see quarterly business income as it is reported, it has the raw material to recalculate in-year liability on a rolling basis. Whether that becomes mandatory or optional is a question the consultation leaves open — but the direction is clear.
What HMRC Is Specifically Asking
The consultation runs to seven chapters and poses fourteen consultation questions. The ones that matter most from a CFO perspective are:
- Question 4: What safeguards should government consider? This is where you push back on the 50% PAYE cap and whether it adequately protects employees who would face disproportionate deductions.
- Question 8: What are the challenges for employers operating more frequent tax code changes? This is where payroll teams document the real administrative cost.
- Question 9: How can the transition be managed smoothly? This is where to make the case for adequate lead time, grandfathering existing POA commitments, and a phased approach.
- Question 11: What is the appropriate frequency for direct POAs for non-PAYE ITSA taxpayers? This is the critical question for seasonal businesses and irregular income patterns.
Responses close on 4 August 2026. Submit via the HMRC online form or email timelypayment@hmrc.gov.uk. Legislation will be introduced in a Finance Bill ahead of the April 2029 implementation date — which means the consultation response this Autumn effectively locks in the design before anything is coded up.
Seven CFO Actions Before 4 August
- Map your director and senior employee population. Identify who draws salary through PAYE and also files a self assessment return. Any individual in scope of ITSA payments through PAYE will see their net pay fall from April 2029 as the ITSA deduction is coded in. Prepare the briefing note now — not in 2028.
- Quantify the payroll administration uplift. If additional ITSA deductions push your aggregate monthly PAYE above £1,500, you will move from quarterly to monthly remittance. Model this now. Give your payroll provider advance warning that tax code volumes will increase materially.
- Engage your remuneration committee. The change in net pay for executive directors and owner-managers is a governance matter. Boards should understand the impact before it manifests in reduced pay packets and unexplained HR queries.
- Brief your self-employed contractors and LLP partners. Anyone you engage through consultancy arrangements with a PAYE element is in scope. They may not have read the consultation. They should know it is coming.
- Review your MTD readiness in light of the link to payment forecasting. If MTD quarterly data feeds into in-year liability estimates, your MTD compliance quality becomes a payment accuracy issue, not just a reporting one.
- Model the transitional double-payment risk. In Year 1 of implementation (2029/30), affected individuals will be required to make instalments under the new regime while potentially settling liabilities under the old one. This is a known transitional risk. Build it into cash flow planning now.
- Respond to the consultation. The design of safeguards, transition mechanics, and employer administrative thresholds is not yet fixed. If the current proposals create disproportionate burden for your business or your people, the 4 August deadline is your opportunity to say so directly to HMRC.
The Broader Context: HMRC’s Real-Time Tax Agenda
This consultation is part of a deliberate and accelerating shift in HMRC’s strategic posture. The department collects around £48 billion of income tax through ITSA each year. Approximately one in five ITSA bills are paid late. HMRC views the current payment architecture — large lump sums settled many months after the income was earned — as structurally incompatible with effective debt management and taxpayer compliance.
The analogy with PAYE is deliberate. Around 30 million employees pay tax in real time through PAYE without complaint, because they never see the money that HMRC takes. The government’s long-term ambition appears to be extending that model as far as the ITSA population as possible. The HMRC Annual Report 2024-25 shows that closing the tax gap remains a primary institutional objective — and structural payment reform is presented as a more durable solution than enforcement alone.
For businesses, the lesson is familiar: the direction of travel is always towards more information, more frequently, collected earlier. The Timely Payments consultation is not a radical departure from that trajectory. It is the next step in it. The CFO who engages with the consultation, models the impact now, and prepares systems and people in advance will be in a materially better position than one who waits for the Finance Bill to drop.