The roll-out of Making Tax Digital (MTD) for Income Tax Self-Assessment (ITSA), due from April 2026 for the self-employed and landlords with income over £50,000, has reignited speculation about a fundamental shift in how and when tax is paid. Could this be the beginning of a move towards quarterly tax payments?
At the moment, individuals in Self-Assessment typically pay tax in two instalments (called 'payments on account') in January and July, with a final balancing payment the following January. However, the MTD regime will introduce quarterly digital updates, and many believe this could be laying the groundwork for a more frequent payment system.
Why does MTD raise the question of quarterly payments?
MTD for ITSA will require affected taxpayers to submit a summary of income and expenses every three months using compatible software. While these quarterly submissions will not initially generate a tax bill, they will provide HMRC with near real-time financial data. This shift in data collection could make it far easier for HMRC to calculate and request tax payments more regularly.
Although HMRC has stated that quarterly updates are not tax returns and are not currently linked to new payment schedules, the infrastructure being developed does pave the way for possible reform.
The case for quarterly payments
From HMRC’s perspective, collecting tax more frequently would smooth the Treasury’s cash flow and reduce reliance on large lump-sum payments that can be missed or underpaid. For some taxpayers, especially those who struggle to budget for biannual or annual tax bills, smaller quarterly payments might be easier to manage.
In theory, quarterly tax payments could align better with real-time profits, helping avoid situations where tax is paid on earnings that no longer reflect current financial performance. This might particularly benefit businesses with fluctuating income.
What are the concerns?
Many accountants and small business owners are wary. A system of quarterly tax payments would require more frequent cash flow planning and potentially place a heavier burden on those already juggling seasonal income patterns or irregular receipts. There is also concern that if quarterly payments are based on estimated figures, taxpayers could end up overpaying and later needing to claim refunds.
In addition, the administrative burden of submitting quarterly updates, end-of-period statements, and a final declaration already marks a significant compliance leap. If tax payments are added to this schedule, the complexity increases even further.
What happens next?
As things stand, HMRC has not announced any change to the current tax payment timetable. The quarterly updates required under MTD from April 2026 are informational only. However, the topic of payment reform remains on the policy radar, and it would not be surprising to see future consultations addressing more frequent payment models.
One option available to affected tax payers who need to file under the MTD regime from April 2026 is to use the quarterly data submitted to estimate current tax liabilities and make appropriate savings to cover future liabilities.
For now, the key message for the self-employed and landlords is to prepare for digital record keeping and quarterly reporting. Choosing the right software and getting used to more regular financial tracking is essential.