HMRC could force self-employed workers and landlords to pay tax monthly on income they have not yet earned.
Under plans being consulted on by the Government, tax could be deducted each month, with the amount owed based on the previous year’s tax return.
The rules would apply to those earning income over an as-yet-undecided threshold. Currently, the amount of tax collected through PAYE is capped at 50pc.
Labour said it planned for the monthly payment regime to start from April 2030.
Experts have warned the move could cause cashflow issues for earners because of the unpredictable nature of self-employed income, as well as impose an additional administrative burden.
Zena Hanks, of accountancy firm Saffery, said: “For the self-employed, this is going to cause huge disruption to cashflow. The principles are sound, ensuring tax is paid closer to income being received, but you can’t predict future income easily.”
Currently, some self-employed workers pay tax twice per year through “payments on account”, in January and July, based on the previous year’s tax return.
However, the new regime would mean taxpayers’ liability is forecast for the year ahead based on the previous year and then split into monthly tax deductions.
For example, if last year’s tax return showed earnings of £30,000, the individual could face payments of £290 each month.
This could leave some self-employed workers or landlords with seasonal incomes paying tax in months they do not have sufficient earnings.
Employees with self-employed income through “side hustles” which exceeds the £1,000 annual allowance could also be dragged into making monthly payments on their additional earnings, The Telegraph understands.
The onus would remain on the taxpayer to update HMRC with the correct information to prevent under or overpayments.
