HMRC’s move to real-time tax: How it could change when you pay

Why the move towards real-time tax will make timely business decisions more valuable than ever

HMRC has published proposals that could change how self-employed individuals and landlords pay their tax.

At first glance, the message is simple: this isn’t a new tax, and it won’t increase what you owe. HMRC wants tax paid closer to the point income is earned, using estimated liabilities and more regular payments.

But the real impact lies elsewhere. This isn’t just a change in how tax is paid. It’s a change in cashflow, timing and, ultimately, control.

Under the current proposal, many self-assessment taxpayers would move away from large periodic payments and towards monthly instalments of roughly 8.3% of their forecast annual liability, with a balancing adjustment once the final position is known.

A shift from hindsight to foresight

Right now, there’s often a considerable gap between earning income and settling the final tax bill. HMRC itself acknowledges a delay of up to 22 months between taxable activity and payment of the associated tax.

That delay has traditionally given businesses time to:

• understand their true profitability
• make investment decisions
• manage the timing of expenditure
• optimise their tax position

In effect, tax has largely been calculated with the benefit of hindsight.

Under the proposed system, that window narrows considerably. Instead of HMRC determining your position from a final set of accounts, it will increasingly form a view of your profits during the year and collect tax on that basis.

If that view isn’t actively managed, your tax outflow risks being dictated by incomplete or outdated information. A more proactive approach lets you control the narrative, so HMRC’s view of your profits is based on the complete picture, not just what’s available at the time.

In a system where tax is paid in real time, the better informed you are, the more control you retain.

The real impact: less flexibility

The opportunity to influence your tax position doesn’t disappear, but the window to do it shrinks. As HMRC builds its view of your business throughout the year rather than from a single year-end submission, there’s less time to react, plan and make sure that view reflects the full picture.

For many sole traders and landlords, the current system provides flexibility. Tax payments are delayed, cash can be retained for longer and there’s time to respond to changing circumstances.

Under a more real-time system, tax leaves the business earlier, and payments may be based on estimates that don’t yet reflect the complete picture. The end result may be the same. The journey won’t be.

The challenge of estimated profits

The proposals rely on forecasts. Initially these will be based on previous years, with HMRC considering more recent information to update those estimates as the ICAEW’s summary sets out.

That works reasonably well for businesses with stable income. But many sole traders and landlords don’t operate in a straight line. Income can be seasonal, costs fluctuate and investment decisions can significantly change the final taxable result.

A snapshot taken mid-year may not fully reflect:

• capital expenditure
• available reliefs
• changing trading conditions
• future business decisions

The risk isn’t that you pay more tax overall. It’s that you pay more of it earlier than necessary.

Why timing now matters more than ever

Under the current system, most tax planning decisions happen towards the year end. Under a system built on in-year estimates, timing becomes just as important as the decisions themselves.

For example, if profits are running higher than expected and you were already planning to invest in equipment or a vehicle, bringing that decision forward could influence not only your eventual tax position, but HMRC’s in-year view of your profits too.

That doesn’t change your final tax bill. It can change when you pay it.

Staying ahead of HMRC’s view

The challenge is no longer just getting the final tax calculation right. It’s making sure HMRC’s in-year view of your business reflects reality.

If that view isn’t kept up to date, you risk:

• paying tax earlier than necessary
• tying up cash unnecessarily
• relying on later adjustments to correct the position

This isn’t about avoiding tax. It’s about making sure tax is based on the right information at the right time.

How A4G can help

As the tax system moves closer to real time, understanding your numbers throughout the year becomes increasingly valuable.

Regular reviews help identify:

• changes in profitability
• opportunities for investment
• emerging cashflow pressures
• potential tax-saving opportunities before year end

Most importantly, they give you the chance to act while there’s still time for those decisions to make a difference.

Whether through management information, forecasting or periodic business reviews, the aim is simple: making sure HMRC’s view of your business reflects the reality of your business.

Final thoughts

These proposals remain at consultation stage, with implementation expected from April 2029. But the direction of travel is clear: tax is moving closer to real time.

The biggest impact won’t be how much tax you pay. It will be how early you pay it, how accurately it reflects your position, and how much control you retain over the process.

If HMRC is forming its view of your profits during the year, it makes sense to ensure that view is as accurate and complete as possible — with adjustments made in-year, while there’s still time for them to matter.

The businesses best placed to adapt won’t necessarily be the ones with the most sophisticated tax planning. They’ll be the ones with the clearest understanding of their numbers, and enough visibility to act before decisions become history rather than strategy.