Partners’ tax payments - Major changes proposed by HMRC

Published: 01 July 2026

On 23 June 2026, HMRC launched a consultation as part of its wider programme to modernise and simplify the UK tax system. The consultation focusses on the timing of income tax payments under income tax self-assessment. The impact of these proposals on cash flow for partnerships could prove to be larger than the recent basis period reforms.

How tax payments for partners work now

Currently, Partners are required to pay tax twice a year under the payment on account mechanism. The due dates fall on 31 January and 31 July. These payments are estimated, based on the prior tax year's liability, avoiding the need to estimate what an individual's self-assessment tax liability could be 'in year'.

What are HMRC proposing to change?

HMRC are exploring bringing tax payments closer to real time. There are two main areas of the consultation:

For those with PAYE income

HMRC have proposed that from 2029, individuals within self-assessment with PAYE income will be required to pay income tax through PAYE on other income streams not taxed at source, like rental income or non-ISA bank interest exceeding the relevant allowances. This can already be done at the taxpayer’s request, but the proposal is to make this mandatory.

For taxpayers outside of PAYE

Nothing has yet been announced for those without PAYE income on their tax return, but the aim of this consultation is for HMRC to determine how similar policies may be applied to individuals that do not have any income sources taxed under PAYE – this will have a major impact on large professional partnerships.

HMRC is considering whether income tax should be payable during or shortly after the period in which profits are earned, rather than in arrears as is currently the case. Any move to an “in-year” system could involve more frequent payment cycles - potentially monthly or quarterly.

Importantly, this is not a standalone change. It continues the direction already established by basis period reform, which has already reduced the delay between when partnership profits are generated and when they are taxed.

Practical difficulties in implementing the proposals

PAYE proposals

Challenges and considerations that we foresee emerging from the April 2029 PAYE proposals include:

• The existing 50% cap on deductions through PAYE means that if liabilities exceed this threshold, additional tax payments may still be required outside payroll
• If the 50% cap is removed, individuals with non-PAYE income could see a noticeable reduction in their monthly net pay
• The operational burden on payroll teams will increase through pressure to ensure deductions are accurate (alongside the existing payrolling of benefits in kind changes)
• There is a high likelihood of fluctuating net pay, which will give rise to additional administrative burden for employers.

Income Tax Self-Assessment proposals

For those outside PAYE, there are still uncertainties in HMRC’s proposals, including:

• The need to rely on prior year data to determine in-year payments. There is limited clarity on how this would operate in the first year of any new system introduced
• The difficulty in determining when and how estimates should be adjusted during the year
• Whether the proposals achieve HMRC’s stated aim of aligning tax payments with cash receipt. For professional service firms in particular, tax may in future fall due before cash is received due to lock-up cycles.

Why this matters to for partnerships

1. Cashflow and tax reserve pressure

If these proposals are implemented in some form, you will need to revisit their tax reserving procedures to make sure that funds are available to satisfy partner tax liabilities potentially in year.

Making earlier and more frequent tax payments may increase the level and timing of reserves required to satisfy liabilities. This may in turn, mean that current cashflow models are no-longer effective, and some partnerships will need to explore new way to finance the business day-to-day.

2. Impact on drawings and capital models

Firms may need to revisit the timing of distributions, or approaches to capital retention, to make sure that they hold sufficient funds to satisfy partner tax payments as they fall due. In practice, the mismatch between when tax payments are due and cash realisation may be exacerbated.

This could affect the whole financial model for the business – particularly in terms of financing future investment and expansion.

3. Increased operational demands

Depending on the timely payment model that HMRC implements, there may be a need to rely on estimated figures to forecast any tax payments which are deemed to fall ‘in year’. This will put additional strain on finance and payroll teams to manage more frequent and complex compliance requirements, including more regular tax modelling and forecasting.

What should you do now?

We are collating thoughts and evidence for our submission on the proposals. Our input to previous consultations of this nature (including on the basis period reforms) has led to meaningful changes to HMRC’s original proposals, including refinements to design and, in some cases, delays to implementation where practical concerns were raised.

This means that there is a short window of opportunity (until 4 August 2026) to help shape how these rules are developed, and we are keen to ensure the professional services perspective is well represented.

We would welcome the opportunity to hear your thoughts regarding the proposals and how they would affect your business if implemented. We encourage firms to make their own representations on the consultation document and would be happy to discuss these with you.

Alternatively, if you would like your views to be included in our response, please contact us or call one of the team by 10 July 2026.