Healey’s self-assessment tax shakeup could lead to ‘brutal cash crunch’ for self-employed

Chancellor John Healey's plan to overhaul the self-assessment tax system has sparked fears among tax advisers that it could lead to a "brutal cash crunch" for the self-employed. Healey announced the changes in his Autumn Budget, stating that the government will alter how income tax self-assessment (ITSA) taxpayers make their Payments on Accounts.

Currently, these payments are made by roughly one quarter of self-employed Brits, who don't pay tax as they earn income throughout the year. Instead, they pay an estimated portion in advance every six months based on their earnings from the previous year. This creates a 22-month delay between earning income and settling the tax owed with HMRC.

The new system will instead require smaller, regular payments as income is earned. Some tax advisers argue that this change could negatively impact self-employed individuals with fluctuating incomes and give HMRC an advantage at the expense of taxpayers. They warn that it could create a significant cashflow challenge for tradesmen and white collar professionals, potentially causing some businesses to close their doors.

The transition is expected to be harsh, with roughly eighteen months of tax due in twelve months. Advisers urge the government to consider delaying the proposal or implementing a phased introduction to allow workers to gradually bring their payments forward and avoid running out of capital. The Office for Budget Responsibility (OBR) estimates that the measure could generate £1.6 billion on average annually from the 2029/30 tax year, driven by reductions in debt losses and a more timely recovery of unpaid tax.

However, many advisers remain concerned about the lack of clear safeguards to protect taxpayers, as the Budget did not provide details on how the change will be implemented.