The government has set out its latest plans to reshape parts of the tax system, with consultations and rule changes covering individuals, businesses and trusts. The proposals include a major review of Self Assessment payment arrangements, alongside reforms across several areas of taxation.
Self Assessment reforms
One of the biggest changes proposed is a reform of how Self Assessment tax is collected, with the aim of helping taxpayers manage their liabilities more evenly and reducing the risk of unexpected tax bills.
ITSA payments through PAYE
The government is consulting on how to deliver:
- From April 2029, payments towards forecast Self Assessment liabilities through PAYE tax codes for some taxpayers with sufficient PAYE income; and
- More regular tax collection throughout the year, rather than larger payments after the end of the tax year.
Changes to Payments on Account
- The government is also reviewing the current Payments on Account (POA) system, which requires some taxpayers to make advance payments towards their next tax bill;
- Under the proposals, payments could be made more frequently throughout the year, bringing tax payments closer to when income is earned; and
- Taxpayers would continue to complete an annual Self Assessment tax return, with any underpayments or overpayments corrected through a balancing payment or repayment from HMRC.
The government is also considering whether the current £1,000 threshold for POA remains appropriate. Currently, around 70% of Self Assessment taxpayers do not make POA because their liability is below this threshold or because more than 80% of their total liability is already collected at source.
Why is HMRC making these changes?
The government believes the current system can make budgeting difficult because some taxpayers may pay tax up to 22 months after earning the income.
This delay can contribute to payment difficulties and tax debt, particularly for newly self-employed individuals who may face a large first tax bill that includes both their current liability and an additional payment towards the following year.
Transition period
The move to a new system could create challenges during the transition year.
In 2029-30, affected taxpayers may need to pay:
- Outstanding tax liabilities under the existing system for 2028-29; and
- New in-year payments for 2029-30.
Modernising the distributions framework
A separate consultation has been launched on reforms to the taxation of company distributions, share buybacks, demergers and shareholder loans.
The current rules largely date back to the introduction of Corporation Tax in 1965. The government believes they no longer fully reflect modern business structures and is considering changes to create a more consistent approach.
ISA reforms
The government has also confirmed further measures linked to the ISA reforms announced at Budget 2025.
The changes are intended to prevent savers from avoiding the reduced Cash ISA limit by moving savings into other ISA products.
Proposed measures include:
- A 22% charge on interest earned from cash held within Stocks & Shares ISAs and Innovative Finance ISAs;
- Restrictions on transfers from non-Cash ISAs into Cash ISAs for individuals under 65; and
- Limits on holding 100% Money Market Funds within non-Cash ISAs.
Simplifying Inheritance Tax reporting for some trusts
The government plans to simplify Inheritance Tax reporting requirements for certain trusts where no tax is payable.
The changes would remove the need for some trustees and individuals to submit Inheritance Tax accounts for trust transfers and events that do not create an Inheritance Tax liability.
The updated rules are expected to apply from 6 April 2027.
Mandatory Direct Debit payments
HMRC is considering whether VAT and PAYE liabilities should be paid by Direct Debit as the default payment method.
Currently, businesses can use several payment methods, including bank transfer, card payments and Direct Debit.
Tax relief claims for employee expenses
The government is reviewing the process for employees claiming tax relief on unreimbursed work-related expenses.
Currently, employees with more than £2,500 of allowable expenses generally need to submit a Self Assessment tax return to claim relief.
The review will consider whether the current approach remains effective and proportionate.
Corporation Tax payment rules for companies receiving tax credits
From April 2027, certain tax credits, including Research & Development, Audio-Visual Expenditure Credits and Video Games Expenditure Credits, will no longer count when determining whether a company falls within the quarterly instalment payment regime.
This means some companies may no longer be required to pay Corporation Tax quarterly simply because they receive these credits.
VAT option to tax goes digital
HMRC will introduce a new online process for submitting VAT option to tax notifications and revocations.
The digital system will replace the current paper-based process and is expected to improve accuracy, speed and efficiency for businesses and agents.
The updated service is expected to be available before the end of 2026.
E-invoicing development
The government has confirmed that the Peppol network will provide the foundation for the UK’s future e-invoicing framework.
Announced at Budget 2025, the proposed changes will apply to all VAT invoices from 2029. While this may seem some way off, the move will require businesses to review their systems, processes and workflows, with software providers expected to play an important role in supporting the transition.
How M+A Partners can help
While many of these measures remain subject to consultation or are not expected to take effect for several years, they highlight the continued move towards greater digitalisation, more regular reporting and increased focus on ensuring businesses and taxpayers have the right processes in place.
For individuals, the proposed Self Assessment changes could affect how and when tax is paid, while businesses may need to consider how future reforms could impact their systems, payment processes and compliance arrangements.
Our experienced team can help you understand how these changes may affect you or your business and provide guidance as the proposals develop. If you have any questions about how the changes could impact your tax position or future plans, please get in touch with your usual M+A Partners’ contact, or contact me using the details below.
