Overview
HMRC has launched a consultation called "Timely Payments", which proposes that self-employed individuals and sole traders may in future pay income tax and National Insurance monthly - based on their previous year's tax submission - rather than through the current twice-yearly "payments on account" system. The consultation closes on 4 August 2026. All figures below are correct as of 19 July 2026.
What is the HMRC Timely Payments consultation?
HMRC launched the Timely Payments consultation in May 2026. It proposes that from April 2027 (aligned with Making Tax Digital for Income Tax), self-employed individuals with income over £20,000 may be required to make monthly tax payments. These would be estimated from the previous year's Self Assessment submission - a payments-on-account model, but paid monthly rather than twice a year.
Key figures and thresholds (as of 19 July 2026)
Making Tax Digital for Income Tax threshold: £20,000 annual turnover (from April 2026)
Current payments on account: 2 payments per year (31 January and 31 July)
Proposed monthly payments: 12 equal instalments based on the prior year's liability
Consultation closes: 4 August 2026
Income Tax: basic rate 20%, higher rate 40%, additional rate 45%
National Insurance Class 4: 6% on profits between £12,570 and £50,270, and 2% above £50,270
Who is affected?
This is most relevant to sole traders and self-employed individuals. It is also relevant to small business owners and owner-managed limited companies who are weighing up the best structure for their business.
Is it time to become a limited company?
If your profits consistently exceed £50,000, incorporating as a limited company may be worth exploring. Limited companies pay Corporation Tax (a 19% small profits rate on profits up to £50,000) rather than income tax through Self Assessment, and would not be affected by this proposal. The right choice depends on your circumstances, so speak to 360 Accounts for a personalised review.
Frequently asked questions
Will HMRC definitely make self-employed people pay tax monthly?
Not yet. It is a consultation that closes on 4 August 2026. HMRC is gathering responses before making a decision, and no legislation has been passed.
When could monthly payments start?
If the consultation proceeds, the earliest likely start date is April 2027, aligned with Making Tax Digital for Income Tax.
Does this affect limited companies?
No. Limited companies pay Corporation Tax (quarterly if large, or nine months after their year end for small companies). This proposal targets sole traders and the self-employed only.
Should I become a limited company to avoid this?
If your profits exceed £50,000 consistently, incorporation may offer tax advantages. Speak to 360 Accounts for a personalised review.
What are payments on account?
Payments on account are advance payments towards your tax bill, currently made twice a year (31 January and 31 July). The proposal would change these to monthly instalments.