Millions face a two-tax-year nightmare

Millions of sole traders, freelancers, landlords and small business owners are being warned to prepare for one of the biggest changes to the tax system in a generation. From 2029, many people who currently pay their tax once or twice a year will move to monthly or quarterly payments. Worse still, millions could find themselves paying two tax bills in the same year as the old system gives way to the new one.

Accountants are urging business owners to start planning now. For some, it could mean putting money aside for years to avoid a cash-flow crisis that might otherwise push already struggling businesses over the edge.

Millions affected by Two Tax Bills in one year

New rules coming from 2029 on how Income Tax Self-Assessment payments are collected could be disastrous for millions of small and micro businesses without careful preparation. This is a call to action: get your accountant on the case now it you want your small business to get through the tax bill double whammy.

The government is preparing to change how millions of people pay tax especially those who file through the Self-Assessment (ITSA) system. This includes sole traders, freelancers, landlords, microbusiness owners and anyone with side‑income not fully taxed through PAYE (Pay As You Earn).

The changes will mean two tax bills in one year for millions of people. HMRC knows that’s a huge danger and has consulted on how to soften the blow, but the double-payment year will happen. What it will do to the smallest businesses remains to be seen, but it’s time to act and get advice. Don’t leave it, because you may have to put money aside for the next couple of years to make sure you can cover the double bill.

Tax will be paid monthly or quarterly rather than in one lump sum.

This is the biggest shift in personal tax since Self-Assessment was introduced.

“ITSA taxpayers” are those who file a Self-Assessment return for:

• self‑employment

• rental income

• dividends

• savings income

• side hustles

• partnership income

If you’re a sole trader, freelancer, landlord, this includes you. It also includes you if you pay tax as an employee, through the PAYE system and you also have a side business.

The government wants tax paid closer to real time because 1 in 5 Self-Assessment bills are paid late, and HMRC wants to reduce tax debt and late payments.

The Government has consulted on these changes

The Government ran a formal consultation on how ITSA payments should change from 2029. That’s now closed and HMRC is analysing responses ahead of publishing its formal outcome in Autumn 2026.This consultation asked for views on:

• moving ITSA tax payments closer to real time

• collecting ITSA tax monthly via PAYE for people who have employment or pension income

• increasing the frequency of Payments on Account (POA) for those without PAYE income

• whether the £1,000 Payment on Account threshold should be lowered

• how to manage the transition year, when taxpayers will face two sets of payments

• whether the current 50% cap deductions through the PAYE system should be changed

• impacts on employers, payroll providers and pension administrators

This is a major redesign of how millions of people pay tax and HMRC has been actively asking for views because the changes will affect just about everyone in any kind of small business or side hustle.

Already in the pipeline for 2029

The consultation was about the details of how it will all work but the core reforms are already set. From April 2029:

Monthly PAYE deductions for ITSA taxpayers who also have PAYE income

If you have a job or a pension through which tax is already deducted, AND additional income (self‑employment, rental, dividends, etc.), your ITSA tax will be collected monthly through PAYE.

• HMRC will forecast your ITSA bill based on the previous year

• Your employer/pension provider will deduct 12 monthly instalments

• You can update the forecast if your income changes

• A balancing payment will still be due the following January if you haven’t paid enough.

This affects 2.1 million people.

Monthly or quarterly Payments on Account for those without PAYE income

If you don’t have any employment or pension where tax is deducted under Pay as You Earn because you are:

• a sole trader

• a freelancer

• a landlord

• a microbusiness owner

• a partner in a partnership

HMRC wants you to pay ITSA tax monthly, or quarterly from 2029 based on your previous year’s tax bill.

Again, you can update forecasts if your income changes.

This affects 2.5 million people now, and potentially millions more if the POA threshold is lowered.

The transition year (2029/30) is the biggest problem

In 2029/30, taxpayers will have to pay:

Their 2028/29 tax bill under the old system AND

Their 2029/30 monthly/quarterly instalments under the new system

This means two tax bills in one year. HMRC knows this is dangerous and is consulting on how to soften the blow, but the double-payment year will happen. What it will do to the smallest businesses remains to be seen but it’s time to take action and get advice. Don’t leave it because you may have to put money aside to make sure you can cover the double bill.

There are other possible changes such as the PAYE deduction cap and lowering of the £1,000 POA threshold. The consultation has covered a range of questions, and we will only know more when the announcements are made later in the year. What we do know is:

Small businesses, freelancers, landlords, sole traders will no longer pay tax once or twice a year; Monthly or quarterly payments will become the norm.

That means cashflow will change permanently; you’ll need to think in monthly tax terms.

If you have PAYE income, your employer will deduct your business tax, and your take‑home pay will fall.

If you don’t have PAYE income, you’ll make monthly/quarterly POA payments and there’s no more saving for January.

The transition year will be painful for millions of people because there will be two tax bills to pay in one year.

Seasonal businesses will struggle because monthly payments won’t match seasonal income patterns.

Microbusinesses will face more admin and forecasting becomes essential.

Concerns all round

The Government has consulted on the detail, but the direction is already set. Small and micro business owners are very worried, and many may decide enough is enough and the income they can pay themselves is too little to make staying in business worthwhile. Employers are worried too as they will be having to collect tax on earnings they aren’t paying to employees and will be used as unpaid tax collectors.

From 2029, ITSA tax will be paid monthly or quarterly, not in one big January lump.

The consultation will refine the details, but the shift to real‑time tax is happening. Whatever your circumstances, PAYE tax deductions, or no PAYE and all paid direct o HMRC, don’t leave this until the last minute to prepare. Get your accountant on the case now. There will be a lot of planning needed to make sure that many of our smallest businesses don’t end up in hock to HMRC for amounts that could see them go bust.