Self-employed and landlords could be forced to pay tax bills monthly as Labour and HMRC mull radical regime change

Landlords and the self-employed could be forced to pay a tax bill monthly in the future. 

Labour is consulting with HM Revenue and Customs (HMRC) over plans to get the self-employed and landlords paying tax monthly on income they have not yet earned. 

The amount of tax owed each month would be based on the previous year’s tax return. 

If the proposals go ahead, the monthly tax bill regime would be likely to start from April 2030. 

An HMRC spokesperson told This is Money: ‘Spreading tax payments more evenly through the year could help taxpayers avoid unexpected lump-sum bills and reduce the risk of falling into tax debt. 

‘We recognise that self-employed people and landlords can have fluctuating incomes, which is why we are consulting widely as we want to hear views on how potential reforms could work in practice.’ 

If monthly tax bills are introduced, HMRC said no one would pay more tax for each year than they do now and that only the timing would change. 

HMRC said the move would bring Britain in line with the tax regimes of other countries such as Australia, Canada, France, Germany and the US. 

The new monthly bill rules would apply to people earning income over a certain threshold, though what this figure could be is not yet clear. At present, the amount of tax collected via PAYE is capped at 45 per cent. 

If the changes go ahead, people’s tax liability would be forecast for the year ahead based on the previous year’s tax return. 

HMRC said: ‘We will forecast liability using the customer’s last submitted Self Assessment return. Customers can make their forecasts and in-year tax payments more accurate by letting us know if they know their tax will be significantly higher or lower than forecast.’ Refunds would be processed when necessary.  

This is Money has contacted the Treasury for comment.  

Why are HMRC keen on monthly tax bills? 

At present, HMRC does not only want to get its hands on money owed from the previous tax year via a self-assessment return. 

It also has a way to ensure self-employed people keep up to date with their taxes via something called payments on account. 

Payments on account are payments towards next year’s self-assessment tax bill, calculated as half of the tax owed the previous year and due by 31 July. 

Some self-employed workers currently pay tax twice a year via payments on account, in January and July, though it can all be paid in one go.  

For the self-employed who pay all their payments on account in one go while filing their main self-assessment, the final bill stumped up can be substantial. 

It is also tricky to accurately know if the payments on account being stumped up in advance are correct or necessary, as a self-employed person’s income may go up or down the following year. 

According to HMRC, in January 2025, 1.1million payments on account were missed. 

Around a quarter of the self-employed who missed the payments on account deadline this year paid within two months, HMRC said. But it added that the other three-quarters became debt that HMRC needed to collect. 

Concern mounting among self-employed

Criticism of the proposals is already coming in. Concerns are mounting about the impact the changes would have on cashflow for people who are self-employed. 

For self-employed people working in seasonal sectors such as tourism, cashflow could become a problem in quiet months, yet the monthly tax bill would still need to be paid. 

The additional administrative burden of the proposed changes is another issue some are concerned about. 

Josh Toovey, head of policy and research at IPSE, the Self-Employed Association said: ‘Self-employed people don’t get paid like everyone else, so their tax shouldn’t be collected like everyone else’s either. 

‘Freelance income can swing wildly from one month to the next, and a system built around smooth, regular payslips just doesn’t reflect that reality.’

He added: ‘Right now, the self-employed need less complexity from HMRC, not more, and piling a new monthly payment system on top risks overwhelming exactly the businesses the government says it wants to support.

‘This is still just one option on the table, and we hope HMRC will genuinely listen to what we, our members and other business groups have to say before going any further.’ 

Charlotte Baroukh, head of tax at Pie, said: ‘The self-employed and landlords don’t enjoy the security of a monthly salary. 

‘Forcing them to pay tax every month would hammer cash flow, making it harder to cover business costs, property repairs and unexpected bills. 

‘With fluctuating incomes, there would also be inevitable overpayments and underpayments, creating even more uncertainty. 

‘It’s another policy that sounds good for the government but could do real damage to hardworking people trying to stay afloat.’

Slow start to Making Tax Digital 

A new tax regime called Making Tax Digital has already been introduced. 

Making Tax Digital makes it mandatory for some businesses to use a digital software system to keep tax records, submit tax data quarterly and make payments. These systems often come at a cost, but can be claimed via the trading allowance in some cases. 

It also affects the self-employed and landlords with a turnover or gross income above £50,000 a year. 

People affected by Making Tax Digital have until 7 August 2026 to report their income and expenditure to HMRC. 

Recent HMRC data showed that 864,000 individuals and landlords should have registered for Making Tax Digital for income tax, but fewer than half have done so.