HM Revenue and Customs is preparing a major change to the timing of income-tax payments that could leave some taxpayers paying liabilities under both the old and new systems during the 2029-30 transition year.

The government says the reform is intended to spread payments and reduce large, late tax bills.

Tax specialists warn that, unless the changeover is carefully designed, it could create a severe short-term cash-flow squeeze for people with employment income alongside self-employment, property or investment income.

What is confirmed is that from April 2029, taxpayers with sufficient Pay As You Earn income and a separate Income Tax Self Assessment liability will be required to make payments towards their forecast self-assessment bill through their tax code each payday.

The deductions will be based initially on the most recent completed tax return, with taxpayers able to update the forecast if their circumstances change.

The policy does not increase the amount of tax legally due.

It brings forward the point at which tax is collected, moving it closer to the period in which the underlying income is earned.

That distinction is important: the long-term liability may be unchanged, but the timing of payment can materially affect household finances, business cash reserves and the ability to meet irregular costs.

The difficult period would be the first year.

Under the present system, taxpayers who meet the relevant criteria make two payments on account, normally each equal to half of the previous year's liability.

They are due on 31 January and 31 July, with any remaining balance paid by the following 31 January.

Those payments are advance instalments towards tax already being earned in the next tax year.

A taxpayer moving into the new payroll-based system in April 2029 could therefore still owe the second payment on account for 2028-29 in July, while payroll deductions have already begun for the 2029-30 tax year.

A balancing payment for the earlier year may also fall due the following January.

HMRC acknowledges that liabilities under the two timetables will overlap during the transition and is seeking views on how to make that period smoother.

The scale of the confirmed change is narrower than some early accounts have suggested.

About 12 million people file self-assessment returns.

Roughly seven million have both self-assessment and Pay As You Earn income, but HMRC estimates that about 2.1 million will have sufficient PAYE income to fall within the announced mandatory payroll-payment regime from April 2029.

For taxpayers without sufficient PAYE income, including many sole traders, landlords and people whose income is wholly outside payroll, no final decision has been made.

The government has consulted on the possibility of replacing the existing twice-yearly payments on account with more frequent direct payments, potentially monthly or quarterly.

That remains a consultation option rather than settled policy.

The consultation, which closed on 4 August, also examined whether the current threshold for payments on account should be changed.

Around 30 per cent of self-assessment taxpayers currently make such advance payments, equivalent to about 3.6 million people.

But that figure does not mean all 3.6 million will automatically be moved to monthly payment in 2029; the design, scope and safeguards for those outside the PAYE group are still under consideration.

The government argues that more regular collection could prevent "bill shock", reduce tax debt and make tax payment resemble the system already familiar to employees.

It says one in five self-assessment bills is paid late and that the delay between taxable activity and payment can be as long as 22 months.

The reform is also part of a wider push to modernise tax administration and bring payment closer to real time.

Critics accept that large January and July demands can be hard to manage but question whether a forecast-based system will work fairly for people with volatile earnings.

Seasonal businesses, freelancers paid late by clients, landlords facing sudden repair costs and investors with uneven returns may see their actual income diverge sharply from the figure used to calculate deductions.

HMRC says taxpayers will be able to revise forecasts and reconcile payments against the final position when they submit their tax returns, receiving a repayment if they have overpaid or making a balancing payment if they have underpaid.

Dan Neidle, the founder of Tax Policy Associates, said: "It would be a mistake to do this, and I hope the Government will realise that." He has suggested that one way to limit the transition shock would be to defer a final payment under the existing system and allow it to be paid interest-free over several years.

Such an approach would still accelerate some receipts for the Exchequer, but would reduce the immediate overlap.

An illustrative example raised by tax advisers shows why the transition has attracted attention.

A taxpayer with annual earnings of £50,000 could face payments on account of £4,866 in January 2029 and again in July, alongside forecast monthly deductions of £811 from April 2029 to March 2030. On those assumptions, total payments would reach £19,464 in 14 months.

The example is not a universal bill: the amount would depend on income mix, tax paid at source, prior-year liability, forecast changes and eligibility for the new regime.

It nevertheless captures the concern that a move intended to smooth payments could initially do the opposite.

Charlene Young, of AJ Bell, said the plan was being presented as a way to prevent large twice-yearly demands but would inevitably mean "more admin, queries and phoning the creaking doom loop that is the HMRC helpline".

She warned that using forecasts created a risk of collecting too much tax if estimates proved inaccurate.

The consultation also raises practical questions for employers and pension providers, whose payroll systems would have to apply revised tax codes.

Under the current proposal, the amount collected through PAYE in a single pay period would generally be capped at 50 per cent of the person's PAYE income, a protection intended to prevent exceptionally large deductions from take-home pay.

If a taxpayer's PAYE income is too low to collect the forecast self-assessment liability within that limit, a separate payment route may still be needed.

The change arrives alongside Making Tax Digital for Income Tax, which will require many self-employed people and landlords to keep digital records and make more frequent updates to HMRC.

Tax bodies have cautioned that overlapping reforms could add administrative pressure for taxpayers and advisers already adapting to new reporting requirements.

The government is due to publish its response to the consultation in autumn 2026. Any legislation would need to be introduced through a Finance Bill before the planned April 2029 start date, leaving ministers to decide whether the transition safeguards are strong enough to prevent a reform designed to smooth tax payments from creating a new payment shock.