Following HMRC’s 23 June 2026 publication of their consultation document “Timely Payments in Income Tax Self Assessment (ITSA)”, KPMG has submitted a response with our views on the implications for our clients and taxpayers more broadly. We discussed the consultation in a previous Tax Matters Digest article.
Consultation summary
The consultation proposed changes that will affect taxpayers differently depending on whether they currently pay taxes through PAYE:
- For taxpayers with a source of PAYE income, such as salary or pension, it is proposed that estimated tax liabilities on non-PAYE income sources be collected through the PAYE system; and
- For those taxpayers that do not have a source of PAYE income, the proposals seek to accelerate tax payments such that an estimate of the liability is paid in regular instalments – assumed monthly or quarterly – in advance of the tax year end.
This is in contrast to the current system whereby payments on account, based on 50 percent of the prior year’s liability, are made on 31 January and 31 July with a balancing payment (or repayment) on the following 31 January.
KPMG’s response
While our response to the consultation was comprehensive, particularly important matters raised include:
- Attempts to use the PAYE system to collect tax on significant amounts of non-PAYE income will result in taxpayers receiving less than expected regular salary or pension payments. The amount received could vary significantly from month to month, while at the same time the current 50 percent limit on PAYE deductions means that some will not pay enough during the year. This could therefore result in unexpected or unpredictable balancing payments falling due;
- For non-PAYE taxpayers, the estimated tax liabilities for a given year will be based on two tax years prior, for example estimated payments for 2029/30 will be based on the liability for 2027/28. For individuals with irregular, volatile or contingent income, this will result in estimated liabilities that are misaligned with the income actually received in the year, increasing the likelihood of material underpayments or overpayments;
- Many businesses experience significant delays between the date that work is completed, the issue of the invoice, and receipt of payment. Cash flow pressures will arise if regular tax payments need to be made each month/quarter based on profits that are recognised but not yet received. Taxpayers may need to rely on external funding, which could also carry additional interest and finance costs; and
- The consultation does not detail any associated changes to the current interest and penalty regime but, in light of some of the challenges, this will be fundamental for taxpayers to understand.
A substantial proportion of ITSA taxpayers are likely to be affected by at least one of the problems outlined above, and if the proposals are to be introduced in their current form, HMRC should provide additional support. Many taxpayers are already adapting to other significant changes that have not yet fully embedded, including Basis Period Reform and changes to the taxation of the alternative funds sector.
Support might include, for example, the ability for taxpayers to easily adjust their payments in order to better align these with the expected liability for the year based on their actual or projected income, rather than an estimate based on two years prior. HMRC should also consider excluding groups of taxpayers for whom the changes are most detrimental, or at least adopt a phased introduction.
Following any changes, agents will need to remain fully able to assist clients, likely requiring fundamental improvements to the current Self-Assessment Statement of Account to facilitate easy reconciliation of tax payments to tax year liabilities and adjustments to future payments on behalf of their clients.
We intend to provide a further update once HMRC publish the outcome of the consultation. In the meantime, if you have any questions or concerns regarding the proposed changes and how these may affect you, please reach out to the authors or your usual KPMG in the UK contact.
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