Self assessment rule changes: payments on account are being reformed but will it go far enough?

The taxman may finally be understanding what it’s like to be self-employed following new chancellor John Healey’s maiden Autumn Budget.

Amid announcements of tax hikes for landlords, first-time buyer housing schemes and business rates support, Healey’s debut fiscal update in October included a throwaway line announcing reform of the administration of self-assessment income tax from 2029.

The revamp includes a much-needed pledge to overhaul the controversial payments on account system, which plagues business owners and freelancers like me by essentially getting us to predict and pay for half of our earnings before we even get paid.

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But there are questions of whether it will go far enough as while the reforms change when the tax is paid, it doesn’t address the vital issue of having the money available to settle a bill.

What are payments on account?

Currently, if you owe more than £1,000 in tax through self-assessment and haven’t already paid more than 80% through your tax code, HMRC adds payments on account to your bill.

These payments go towards your tax bill for the current tax year, with the amounts calculated using your previous year's tax liability.

One portion is added to your 31 January bill, and the rest is owed by 31 July.

For example, if your tax bill for the 2025/2026 tax year was £3,000. The total tax to pay by midnight on 31 January 2027 would have been £4,500.

This includes your £3,000 tax bill for the previous financial year and the first payment on account of £1,500 – based on your previous earnings – towards your 2026/27 tax bill.

You will then owe a second payment on account of £1,500 on 31 July 2027.

Many accountants, tax experts and HMRC argue that this helps the self-employed, as if you sort your self-assessment early enough when the tax year ends in April, you can budget for these payments.

Technically, if you are organised, then you are giving yourself from April to January to pay half your current tax year's bill with the first payments on account instalment and then have another six months until the end of July for the rest.

You can ask HMRC to lower your payments on account if you think your earnings will fall, and you can get a refund if you pay too much. There is a risk that you may be charged interest if you underpay, though.

HMRC can charge late payment penalties starting from 5% if a tax payment is 30 days late, as well as 7.75% interest from the day after the payment is due, so it is important to pay.

But if you are disorganised, or busy running a business, the current payments account system can create a massive dent in your wallet when the taxman comes calling in January and July.

What is changing with payments on account?

The government has been consulting on changes to the payments on account system since late 2025.

Healey confirmed plans to reform the system in his Budget. He said planned changes to the self assessment system, used by the self-employed to report and pay for any untaxed income, will mean “smaller, more regular payments instead of facing large bills that are often harder to pay”.

From April 2029, self-employed business owners like me will be able to make regular, smaller payments throughout the year, rather than large lump-sum payments that cover earnings that have been long-forgotten about.

This means that rather than waiting until self-assessment season in January and the payments on account deadline the following July, my accountant and I will be able to estimate my tax liabilities, make voluntary advance payments through the year and track how much has been paid against my forecasted bill.

HMRC is promising more online and app tools to support this.

Will the payments on account changes help the self-employed?

The changes remove some of the friction when it comes to self-assessment.

It takes away some of the dread of calculating a large payments on account bill as I will be able to split it into smaller payments.

The government hasn’t indicated when payments will be due, but if it’s designed properly, this will hopefully help me budget for and manage my tax bill over the year.

While making smaller payments will be easier on my wallet, the one issue the changes still don’t address is cashflow.

One of the main problems with payments on account is that it assumes what I earned last year will be the same a year later. There is no allowance for fluctuating freelance incomes.

Even if I do earn the same, there is no guarantee that I will be paid on time. This means there is no guarantee that I, or other self-employed people, will have cash ready to access. Making more regular payments at least means I can contribute a smaller amount.

Harvey Dhillon, chief executive of accountancy firm Zmartly, said: “It's a good change, but payments on account aren't on the way out – it's the big twice-yearly payments in January and July that are going.

“From April 2029, anyone who makes payments on account, not only the self-employed, will pay smaller, automatic amounts during the year, still based on last year's tax.

“The biggest plus is for people who don't save for their tax bill, a mistake I see online sellers make, because high turnover and constant cash hide the real profit.”

Dhillon points out the same tax will simply leave your account sooner, adding: “How often you'll pay hasn't been decided, and none of it is law yet.”

There is one downside that I, and other self-employed people, will need to watch out for though.

Dhillon explains: “The catch is the changeover year, when the last payment under the old system lands on top of the first new ones, so start putting money aside well before it arrives.”