HMRC plans faster self-employed tax payments under UK revenue drive

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HMRC self-employed tax changes

Highlights

Wednesday's UK Budget introduces a shift for self-employed from two lump-sum tax payments to more frequent payments throughout the year.
HMRC estimates the UK's 2024-25 tax gap at £59 billion or 6.4% of total due, targeting small businesses for accelerated collection.
The Treasury forecasts £2 billion increased revenue by 2029-30 and £260 million from hiring 670 compliance officers, but acknowledges highly uncertain revenue estimates.

Budget measure targets payment timing

As reported by the Financial Times, Chancellor John Healey is making stricter tax collection a central part of his fiscal plans, with the Treasury expecting faster payments from the self-employed to raise more than a temporary increase in the bank corporation tax surcharge. Wednesday’s Budget sets out a shift from two lump-sum payments to regular payments through the year for self-employed taxpayers.

The measure forms part of a broader effort to narrow HM Revenue & Customs’ tax gap, the difference between the tax it receives and the amount it believes it is owed. HMRC estimates that gap at £59 billion in 2024-25, or 6.4 per cent of the total due, with nearly two-thirds attributed to small business.

The government says measures to modernise the tax system and close the tax gap are projected to raise £2 billion in 2029-30. The Office for Budget Responsibility says revenue estimates from compliance measures are highly uncertain and depend both on taxpayer behaviour and on how effectively the policies are carried out.

Cash flow risks and enforcement impact

Supporters of the change argue that more frequent payments could reduce the risk that taxpayers spend money that should later go to HMRC, especially because self-assessment bills are currently often settled nine months after the end of the tax year. In insolvency cases, the tax authority can miss out entirely, making earlier collection more attractive from a revenue perspective.

Tax specialists, however, say the transition could be difficult for many businesses. Arun Advani, director of the Centre for the Analysis of Taxation, says the logic is understandable but warns that the overall fiscal numbers are finely balanced, while Chris Sanger, UK tax policy leader at EY, says the system could be problematic for businesses with seasonal or fluctuating profits.

The government has not yet explained how it plans to manage the transition or how it calculated the projected revenue from the new payment schedule. The Budget also includes plans to hire 670 additional HMRC compliance officers by 2029-30, a move the Treasury forecasts will raise £260 million, while HMRC’s latest annual report says the department generated £22 for every £1 spent on its compliance workforce in 2025-26.

In our earlier coverage of Chancellor John Healey’s deficit-reduction plans ahead of his October Budget, we outlined his commitment to sticking with a disciplined fiscal path while still trying to support growth. We also noted that the UK economy posted modest resilience with 0.1% GDP growth in August, even as political pressure mounted over how far the Budget should go on taxes and structural reforms.

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