Monthly tax bills for the self-employed? It just doesn’t add up

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Why should the self-employed pay tax monthly if they don’t get paid monthly?

Employees get paid on a monthly basis, and HMRC collects tax from them each payday. It’s a fair system that works because the money is there for the taking.

On the other hand, the self-employed don't get paid monthly. Some are lucky enough to have net 30-day payment clauses with their clients. But payments can arrive late, or never at all. Payment terms can be changed at the drop of a hat. And contracts terminated at short notice.

These are the people HMRC now wants to bring into an employee-style monthly tax system. If you ask me, that’s the last thing they need right now.

Say your last tax return showed £30,000 in self-employed earnings. Under new proposals, HMRC would use that figure to forecast what you owe this year, split it into twelve equal instalments, and start collecting roughly £290 a month.

Yes, potentially before this year's income has arrived, and regardless of whether this year’s income looks anything like last year’s.

The proposal comes from HMRC's new consultation, Timely Payments in Income Tax Self Assessment (ITSA). It’s only relevant to people who pay tax exclusively via Self Assessment.

For ITSA taxpayers who also have a PAYE income, the rules are already set to be different. From April 2029, they will have their forecasted tax collected through payroll each payday. What HMRC is exploring now is whether to extend a similar model to ITSA-only taxpayers, potentially from around 2030.

HMRC say they want to make ITSA payments more timely to prevent people from falling behind on their tax payments, with around one in five ITSA tax bills being paid late.

They also say it will help people in the early stages of self-employment and help them manage the initial “bill shock”, where the first year ITSA tax bill is often paired with a 50% payment on account for the following year.

But like anything related to tax, it’s never that simple.

PAYE works because salaried income is predictable. It comes in on the same date, at roughly the same amount, every month.

On the other hand, a freelancer might invoice £8,000 in March and then nothing in April. A landlord might have a two-month void between tenants. They can’t always predict when these gaps will happen.

Under HMRC’s proposals, the only way to cope with this would be to hoard even more cash, rather than put it to good use by spending it in the economy or putting it towards a pension.

Second, it contradicts the quarterly reporting flow HMRC insisted on making a feature of Making Tax Digital. HMRC themselves say in the consultation that our tax system is “not aligned with the self-assessment systems of many OECD countries, where tax is paid around 3 months after the taxable activity.”

Why compare our ITSA system with countries that pay quarterly, introduce a quarterly reporting system through MTD, and then ask the self-employed to pay monthly? It’s yet another layer of confusion for the self-employed to navigate.

There’s also an irony to government's plans. Earlier this year, government legislated to set a maximum payment term for larger businesses contracting with smaller suppliers. That term’s length is 60 days.

In other words, one arm of government has created a 60-day window for payments, whilst another arm of government expects to be paid twice as fast.

Sorry HMRC, but the maths on this one just doesn’t add up.

These proposals, should they go ahead, would be the latest in a list of extra burdens, costs and requirements government has asked the self-employed to take on.

Making Tax Digital is adding quarterly reporting requirements on top of the cost of new software. The VAT registration cliff edge is still forcing sole traders to down tools early in the year. Income tax thresholds are still frozen, and government toys with raising self-employed national insurance before every Budget.

Each of these, on its own, has been framed as a modernisation or a pursuit of fairness. But it’s starting to feel like a one-sided kind of fairness - the kind that makes tax easier and more lucrative for HMRC, and painful for the people paying it.

If the self-employed had the slack to absorb these changes, nobody would be concerned. But they’re set to land at a time when the self-employed - and the economy - are playing catch up.

HMRC's consultation closes next week, on 4 August 2026. Decisions about how, or if, this all goes ahead are still being shaped. That means there's a window to make sure the people this would affect are heard.

If you have the time, you can respond directly to the consultation.

You can also raise it with your MP. Tell them what this would mean for your business. What would a monthly deduction, built off last year's income, do to your cashflow this year? and ask them to make sure the government hears it before the consultation closes.

If you can’t do either of these things, IPSE has you covered. We’ll be responding to the consultation on behalf of the self-employed. If you want to quickly share your views for us to factor in, feel free to share them in the comments here, or by email to [email protected].