Among the wide-ranging package of consultations and policy announcements released by HMRC on 23 June 2026, one proposal stands out as potentially transformative for the cash flow planning of every sole trader, freelancer, landlord, and director in the country.
The Timely Payments consultation — formally titled "Timely Payments in Income Tax Self Assessment" — proposes moving self-employed taxpayers, landlords, and others within the Self Assessment system to more frequent in-year tax payments, rather than the current system in which payments fall due in January and July.
The consultation period closed on 4 August 2026. HMRC will now analyse responses before deciding whether to proceed, and any legislative changes would require Parliamentary time. This is a consultation, not a done deal. But it signals a clear direction of travel, and business owners should understand what is being proposed before it becomes policy.
How the Current System Works
At present, Income Tax liabilities under Self Assessment are collected through a system of payments on account and a balancing payment.
Two payments on account are made during the year — one by 31 January and one by 31 July — each equal to half of the previous year's tax liability. A balancing payment, settling any underpayment or triggering a refund, falls due the following 31 January alongside the first payment on account for the next year.
For a sole trader with a stable income, this means two significant cash outflows per year — typically in January and July. For many self-employed people, particularly those with seasonal income or variable cash flow, these lump sums are manageable precisely because they are predictable. You know January and July are coming, you plan for them, and you set money aside.
What HMRC Is Proposing
The Timely Payments consultation explores three broad models for more frequent collection of Income Tax under Self Assessment.
The first model aligns tax payments with quarterly MTD for Income Tax submissions. Under this approach, a taxpayer would pay a proportion of their estimated tax liability at each of the four quarterly MTD deadlines — broadly in August, November, February, and May. The quarterly payment would be based on the income and expenses reported in the preceding quarter's MTD update.
The second model uses PAYE-style monthly or quarterly deductions for taxpayers who also have employment income — essentially extending the PAYE mechanism to cover their self-employed or property income as well as their salary. This would primarily affect people who are both employed and self-employed, or directors who receive a salary alongside dividends and other income.
The third model involves more frequent but voluntary in-year payments, with a mechanism to smooth liabilities across the year for those who choose it.
None of the models has been finalised. HMRC has explicitly stated that the aim is to collect the right amount of tax closer to when income is earned, reducing the gap between income arising and tax being paid.
Why HMRC Wants This Change
The stated rationale has two parts. First, HMRC argues that the current system creates large, lumpy tax bills that are difficult for some taxpayers to manage, leading to debt, Time to Pay arrangements, and ultimately higher collection costs for the government. By spreading payments more evenly, HMRC believes compliance rates would improve and collection costs would fall.
Second, HMRC points to the broader MTD programme as creating the infrastructure for in-year reporting that makes more frequent payment practically feasible. If taxpayers are already submitting quarterly income and expense summaries through MTD-compatible software, calculating a proportionate quarterly payment is a natural extension of that process.
From HMRC's perspective, the analogy is straightforward: employees pay tax every month through PAYE. Self-employed people pay in two large lumps per year. More frequent collection would reduce the disparity and modernise the system.
Why This Matters for Business Owners and the Self-Employed
The current system has one significant feature that the proposed models would remove: time. Under the existing payments on account system, a sole trader earning £80,000 in the year ending 5 April 2026 does not pay the bulk of that year's tax until January 2027 — nine months later. That money can sit in a business savings account earning interest in the meantime. It provides a liquidity buffer. And it means that in the months immediately following the tax year end, the self-employed person's cash flow is not immediately impacted by the liability that has just crystallised.
Under a quarterly model, that buffer disappears. Tax on April-to-June income would be payable in August — only two months after it was earned. For a business owner who currently manages cash flow by timing their tax reserve account contributions to January and July, the shift to quarterly payments requires a fundamentally different approach.
For businesses with highly variable or seasonal income — a consultant with a strong Q4 followed by a quiet Q1, a landlord with annual rent review cycles, a contractor whose engagements start and end unpredictably — quarterly payments based on the preceding quarter's actual income could create instability. A strong quarter generates a large payment two months later, followed by a quiet quarter that underpays. The year-end reconciliation adjusts for this, but the in-year cash impact is less predictable than the current system.
What Is Not Being Proposed
It is worth being clear about what the consultation does not propose. It is not suggesting that the total amount of tax paid increases. The annual liability remains the same under any model. What changes is the timing of when that liability is settled.
The consultation also does not propose removing the Self Assessment return or the Final Declaration under MTD. The year-end reconciliation would still occur — the quarterly payments would be advance payments against an eventual settled position, adjusted at year end.
And the consultation does not propose changing the rules for companies. Corporation Tax collection mechanisms for limited companies are separate and are not within the scope of this consultation.
What CoreAcc Accountants Thinks Will Happen
The direction of travel is clear. MTD for Income Tax has already created the reporting infrastructure for quarterly submissions. Extending payment obligations to align with reporting obligations is a logical next step from HMRC's perspective. We believe some form of more frequent in-year payment is likely to be introduced over the next two to four years, with the exact model determined by how HMRC interprets the consultation responses.
The most likely outcome, in our view, is a hybrid model — voluntary in-year payments with a mechanism to smooth liabilities, alongside mandatory quarterly payments for higher-income taxpayers already within MTD. A mandatory quarterly payment regime for all Self Assessment taxpayers would be the most disruptive change and would require significant taxpayer and software readiness, which is why we expect it to be phased in gradually if adopted at all.
What You Should Do Now
Even if timely payments are years away from being mandatory, the consultation is a strong signal that the Treasury views the current system as outdated. The practical steps worth taking now are to begin thinking of your tax liability as a continuous obligation rather than a twice-yearly event, to ensure your bookkeeping is current and your quarterly MTD submissions are accurate so that any future in-year calculation is based on reliable data, and to maintain a dedicated tax reserve account — setting aside a percentage of income each month as it arrives — so that quarterly payments, if and when they become mandatory, do not disrupt your working capital.
CoreAcc Accountants will publish a detailed guide to any Timely Payments announcement as soon as policy decisions are confirmed. We will also cover any relevant announcements in our Budget analysis following the 28 October statement.
Want to discuss how a shift to quarterly tax payments would affect your cash flow planning? Contact CoreAcc Accountants today.
CoreAcc Accountants is an ACCA-accredited firm of Chartered Certified Accountants. This article was published on 15 August 2026 and reflects the HMRC Timely Payments consultation published on 23 June 2026. It does not constitute professional advice. Always seek specific advice for your individual circumstances.
