ICAS responds to the HMRC Timely Payments in Income Tax Self Assessment (ITSA) consultation

We responded to HMRC’s consultation on plans to make Income Tax Self Assessment (ITSA) payments more timely, including collecting some ITSA liabilities through PAYE and introducing a more frequent in-year payments for other taxpayers. We support the aim of helping taxpayers manage liabilities and reduce late payment, but raised concerns about cash flow, administrative burden and the need for further consultation on how in-year tax forecasting would work in practice.

The consultation, published on 23 June 2026, seeks views on implementing changes announced at Budget 2025 which require some taxpayers with PAYE income to pay forecast ITSA liabilities in-year through PAYE from April 2029. It also seeks views on proposals for more frequent payment of income tax liabilities for ITSA taxpayers without PAYE income.

Our response accepts that aligning payments more closely with taxable activity could help some taxpayers manage liabilities and reduce late payment or “bill shock” as envisaged by the consultation. However, we noted the lack of detail on what we see as a key operational aspect, particularly how taxpayers or their agents will be required or expected to forecast in-year tax liabilities. We believe how this will operate is central to achieving the intended policy outcome and we have highlighted the need for further consultation on this.

We expressed surprise at the short consultation period for what HMRC notes is a “significant change”, particularly as there are currently a number of other open consultations requesting feedback, amid the ongoing pressures on tax agents, employers and businesses.

Cash flow concerns

We believe that taxpayers should pay the tax they owe when it falls due, however have pointed out in our response that paying more tax earlier may reduce the flexibility businesses need to meet supplier, staffing and operating costs. This may be particularly challenging for start-ups, seasonal businesses, taxpayers with irregular receipts, and unrepresented taxpayers who may not anticipate the effect of the new rules.

We’ve noted specific groups potentially at risk of overpayment or hardship, including certain construction industry subcontractors, taxpayers with student loan deductions, individuals claiming foreign tax credits, pensioners receiving trust income, and businesses affected by bad debts or customer insolvency. We have therefore stressed the need for effective mechanisms within HMRC to reduce PAYE deductions or secure repayments where forecasts prove to be excessive.

Collection of ITSA liabilities through PAYE – ITSA taxpayers with sufficient PAYE income

Our response recognised that this may help taxpayers who already choose to have liabilities coded out. While maintaining or perhaps extending the circumstances where taxpayers can choose to do this provides taxpayers with a degree of control, we believe the government should be cautious about mandating the approach.

We’ve included our reservations about the potentially inequitable segmentation of the ITSA population based on PAYE income which would result from implementing the announced changes. The response also illustrates what we see as potential unintended, distortive consequences for the labour market, the economy and economic growth, from these changes. We believe these could include discouraging individuals from taking up part-time employment alongside self-employment, starting a new business while employed, or taking on their own employees. Employers may also become less willing to allow employees to undertake self-employment if this increases payroll complexity.

Our response highlights significant administrative burdens for employers and pension providers resulting from the changes, including more frequent tax code amendments, increased employee queries and the possibility that some employers may have to move from quarterly to monthly PAYE remittances. We have emphasised particular concerns about small businesses and self-employed employers, likely to have limited capacity to absorb additional payroll obligations or to outsource payroll operations.

These burdens arise in an environment where ICAS members have provided feedback about instances of PAYE calculations not taking proper account of self-assessment information and concerns about inaccurate or out-of-date tax codes. We’ve pointed this out in our response, calling for full alignment between HMRC’s PAYE and ITSA systems, improved real-time support for employers, and better access for agents to their clients’ PAYE information.

In light of our concerns, we’ve recommended that rather than raising the safeguard threshold to collect more tax through PAYE, many taxpayers may need a lower maximum deduction to avoid the challenges noted throughout our response. We’ve also suggested that HMRC should consider increasing the current £3,000 limit for voluntary coding out, so more taxpayers can opt into PAYE collection without making it compulsory for all taxpayers.

We’ve noted our view that allowing individuals to choose for themselves whether to pay through PAYE or through potentially more regular direct ITSA payments could support trust, compliance and effective cash-flow management.

Proposals for ITSA taxpayers without PAYE income

The adverse implications for business cash flow and additional compliance burdens are also relevant for this group of taxpayers and these consequences of replacing the existing payments on account regime with monthly or quarterly in-year payments are included in our response. If reform has to proceed, we would prefer quarterly payments to monthly payments for most taxpayers, although larger businesses might welcome a monthly option. We’ve suggested that thresholds could potentially be used to determine whether taxpayers remain on the current twice-yearly system, move to quarterly payments, or opt into monthly payments as an alternative approach.

Our concerns about distortive behavioural implications from more frequent payments for unincorporated businesses, without corresponding changes to corporation tax payment timings for smaller companies, could increase incentives for tax-motivated incorporation have been reflected in our response.

The consultation suggests a future use of MTD quarterly updates for the purposes of in-year forecasting. We have expressed serious caution on this. MTD updates are not currently tax-adjusted and will, in all but the simplest of cases, be unsuitable for estimating annual taxable profits, especially where year-end tax planning, capital expenditure or other adjustments affect the tax liability for the year. We’ve suggested that any future change to make MTD data more suitable for forecasting should in any event wait until the full mandated MTD population is in place from 2028-29 and proposals for this should also be subject to further consultation.

Transition period

Our response suggests that taxpayers should be allowed to spread pre-implementation liabilities over two to five years, potentially using thresholds to determine the repayment period. We also supported a soft landing for interest and penalties during the early years of the new regime.

For new or returning ITSA taxpayers, we argued that estimating liabilities in the first year of a business will likely be impractical. We recommended that new unincorporated businesses aren’t brought into mandatory timely payment requirements in their first year.

Our response suggests that HMRC should focus instead on earlier notification, targeted communications and signposting to tools such as the Budget Payment Plan for this population.

In conclusion

We don't reject the objective of helping taxpayers make more timely payments and supports the principle of reform which is intended to improve compliance and reduce taxpayer debt.

We do, however, believe that the changes should not proceed without further consultation on the practical mechanics of how the policy objective is to be achieved through in-year forecasting.

We have stressed that reliable HMRC systems must be in place before implementation to minimise disruption and errors for taxpayers and agents, and that careful protection for those most exposed to cash flow shocks is implemented.

Let us know your views

We respond tax consultations and calls for evidence and attend meetings with HMRC at which service levels, delays and other issues you raise with us are discussed. We welcome input from members to inform our work. Email us to share your insights and feedback.