What is actually happening to payment on account

You might have seen a few shocking headlines since the Budget a couple of weeks ago, such as "Self-employed to pay tax twice", or "Freelancers to pay tax before they've earned the income".

A big part of our job here is to break things down, make them understandable, and consider the human aspect of freelancing. We tackle topics like this especially when the headlines can make people anxious.

Here is what is really behind these stories.

What happens right now?

Payment on account is how HMRC collects tax in advance from people who do Self Assessment.

If your last tax bill was over £1,000, and less than 80% of it was taxed at source (via PAYE), HMRC asks you to pay towards next year's bill early. You pay it in two halves, on 31 January and 31 July, each based on last year's bill.

For new freelancers, that means in your first year you pay the first year's tax in January, and then 50% of the following year's estimated tax too. That can be a painful surprise if you are not expecting it. The payment on account guide walks through how it works.

In later years, you are simply paying your tax twice a year, to smooth the payments out.

What is changing?

At last month's Budget, the government confirmed that from April 2029, payments on account will be replaced with smaller, more regular payments during the tax year you earn the money. Rather than two lumpy payments, you will pay more frequently, and closer to when you earned the income. We wrote about the consultation in July. The Budget factsheet is now the confirmed version.

It has not been confirmed exactly how often those payments will be taken yet, but we do know:

• Same tax, different timing. You will not owe more tax. You will pay it sooner, and in smaller chunks.
• Estimated from the previous year. Payments will be based on last year's tax bill, as they are now.
• Collected automatically. It is likely to be taken by Direct Debit, or something similar, rather than you making the payment yourself.
• You will be able to adjust how much you pay. HMRC says it will have digital tools from 2028 to track and change your payments if your income changes. With freelancing, it often does.

Some commenters are raising fair concerns, specifically around cash flow.

Freelance income can be hugely variable. What you made last year and what you make this year are not always the same, so if your income has dropped, an estimate can mean you are asked to pay more tax than will be due. You can adjust those payments, but you may end up paying interest on amounts that do not cover the final liability.

If payments are due more often, late client payments bite harder. If tax is due quarterly, and an invoice is not paid for 60 days, you might not have the funds to cover the tax.

It is also more admin: working out and managing tax payments every few months, rather than one return at the end of the year, or two payments through the year. This is likely to sit alongside Making Tax Digital, which already asks some people for quarterly updates. That is extra work for small businesses, who often do not have an accountant.

Where does the "pay tax twice" headline come from?

You will not be paying double the tax. During the switchover year in 2029/30, when the current model ends and the new one starts, you may be paying off the year before (the July 2029 payment and the January 2030 balance) and starting in-year instalments for the current year. A bit like the first year of trading.

You are not paying tax twice. You might have to pay tax for more than one year, within the same year, which can hit your bank balance.

The government has said it will put support in place to spread these payments, or make them easier to cover. The detail on what that means is thin right now.

That is the worry. We do not know the specifics yet. How often you will pay, and how the changeover will work, is not settled, and it can still change. There are plenty of examples of policies being rolled back after public pressure. Industry bodies are pushing back now, on the basis that this might be very hard for a lot of people.

This conversation has been going on for a while, through the consultation, and the change has still been announced. Until the detail is published, it is hard to know exactly what to prepare for.

What to start thinking about

If tax already makes you anxious, these headlines can feel like more to worry about. Nothing changes before April 2029.

1. Nothing changes yet. Same deadlines, same amounts, until April 2029. Keep on top of your records, so you have a good idea of what your tax bill will be. If you are starting Making Tax Digital next year, the MTD guides cover what that means. You will be keeping track of income more regularly anyway.

2. Put tax aside every time you are paid. Move the tax into a separate account the day the money comes in. That habit is the best protection against whatever system comes next. Cover your estimated tax, and if you are in your first year, include payment on account for the following year.

3. Get stricter with late payers. If tax is due more often, cash flow matters more. Get firm on payment terms now, put a process in place, and do not accept terms over 30 days. The late payments guide is the place to start.

4. Start building a buffer for the switchover. You have time to build a savings pot that could soften the blow. One simple version is putting an extra 5% aside on each invoice from now until 2029.

That will not be possible, or easy, for many people. The way the government is talking about this puts the onus on you to get ready:

"The government is confident taxpayers will be able to plan for this change. These taxpayers will have over 2 years to prepare."

In summary

Yes, more things to think about. Changes are coming, and you might need to put some funds aside to cover the overlap. We will keep you posted when more of the detail is agreed.

This is not financial or legal advice. It is one freelancer trying to make sense of these things too. This is not something you need to bother your accountant with yet, but getting professional advice is always a good idea.

Deadlines

7 November. MTD quarterly update. If Making Tax Digital for Income Tax applies to you, submit the quarterly update for the period through 5 October, using MTD-compatible software.

18 November. Companies House identity verification. If you are a company director or a person with significant control, the transition window closes on this date.

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