Landlords and self-employed workers could be forced to pay tax every month on their income before they have earned it, under plans being proposed by HMRC. The Daily Telegraph reports that the tax bill would not be based on current earnings.
It would be calculated instead from the previous year's tax return, then split into monthly deductions.
Labour has pencilled in April 2030 as the start date for the regime, though the payment threshold is still to be decided.
Disruption for landlords' cashflow
Zena Hanks, of accountancy firm Saffery, told the newspaper: "For the self-employed, this is going to cause huge disruption to cashflow.
"The principles are sound, ensuring tax is paid closer to income being received, but you can't predict future income easily."
An HMRC spokesman said: "Spreading tax payments more evenly through the year could help taxpayers avoid unexpected lump-sum bills and reduce the risk of falling into tax debt.
"We recognise that self-employed people and landlords can have fluctuating incomes, which is why we are consulting widely as we want to hear views on how potential reforms could work in practice."
Tax bill for landlords
At present, some self-employed people pay tax twice yearly via 'payments on account' which is settled in January and July against the previous year's return.
One example published by the Daily Telegraph gives a sense of scale of what landlords could be facing.
Someone whose tax return last year had £30,000 of earned income could be facing a monthly bill of £290 - regardless of what that month brings in.
For landlords with erratic or seasonal rent income, it means paying a tax bill when there isn't the income to cover them.
Keep HMRC informed
Employees with side earnings above the annual £1,000 allowance wouldn't be spared either.
They could be pulled into making a payment every month on those additional earnings too, the Telegraph says.
The responsibility would sit with the taxpayer to keep HMRC updated with correct information, to head off under or overpayments before they build up.
Making Tax Digital issues
News of the consultation follows April's rollout of Making Tax Digital, which requires taxpayers to file financial information, if they are eligible, four times a year through HMRC-approved software.
That threshold is currently £50,000, which falls to £30,000 next year and then £20,000 from 2028.
However, the controversial scheme was delayed four times and was £1bn over budget before it even launched.
Some landlords and freelancers have threatened to quit the private rented sector and self-employment altogether over the paperwork involved.
Making Tax Digital deadline
News of landlords having to pay tax monthly coincides with research that reveals that a quarter of qualifying landlords and sole traders have still not signed up for Making Tax Digital.
That's according to new research from business platform Tide, despite the first filing deadline landing on Friday 7th August.
The survey of landlords and sole traders earning £50,000 or more found that 216,000 of the 864,000 required to join have yet to register with HMRC.
Those in the South East, North West and London show the lowest rates of compliance.
Also, 85% of respondents do not know how often they must file, and almost a third wrongly believe eight or more submissions a year will be required rather than the actual figure of five.
Small landlords face a risk
The managing director of Accommodation for Students, Simon Thompson, said: "Landlords could be paying a monthly tax bill before tenants have actually paid any rent.
"HMRC officials propose calculating instalments from prior filings rather than current cashflow, meaning obligations arrive regardless of vacancies or arrears."
He added: "That doesn’t take into account seasonal lettings, void periods and irregular income so the regime could be awkward for smaller portfolio holders.
"There's no doubt some landlords will feel a financial and administrative strain, since tax forecasts rarely match reality for those juggling uneven income."
