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Self-employed taxi drivers face MAJOR tax cash-flow squeeze as HMRC changes Payment on Accounts system in 2029
Self-employed taxi drivers could face a sharp increase in the cash they need to set aside for tax during the 2029–30 transition year, as HM Revenue and Customs (HMRC) prepares to replace its existing Payments on Account system with more regular payments.
The change does not increase the tax owed. But drivers who are required to make Payments on Account may have to meet two sets of obligations in the same year: a final balancing payment under the current system and payments towards tax on income earned under the new arrangements.
Under today’s rules, Payments on Account are usually made in two instalments, each equal to half of the previous year’s tax bill. The first is due in January and the second in July. If those payments do not cover the full bill, a balancing payment is due by the following 31 January, alongside the tax return.
From April 2029, HMRC plans to introduce smaller, more regular payments during the tax year in which income is earned. The schedule has not yet been decided. Payments are expected to be automated, for example by Direct Debit, and will continue to be based on the previous year’s tax unless the taxpayer updates their estimate.
The pressure comes from running the old and new systems together during the transition. A driver may still owe a balancing payment for the previous tax year while also beginning to pay towards the current year’s tax as earnings come in. For someone whose tax liability is broadly similar year to year, this could mean paying close to two years’ worth of tax obligations within one year, even though the underlying tax liability has not doubled.
The precise amount and timing will depend on each driver’s tax position and the payment schedule HMRC eventually adopts. The factsheet does not yet set out how the transition will work in individual cases. HMRC says it will provide more detail in 2027 and offer guidance, tools and support, including payment plans.
The change will affect Self Assessment taxpayers who have to make Payments on Account. A taxpayer is generally exempt if their previous year’s tax bill was below £1,000, or if more than 80% of the tax due was paid outside Self Assessment, such as through a tax code. Drivers can check their Self Assessment statement or online account to see whether they currently make these payments.
For cabbies, the change is seen as a huge problem for many because tax payments compete with day-to-day business costs, including fuel or charging, vehicle finance, insurance, maintenance and licensing. Drivers with variable earnings may also find it harder to estimate their payments in advance. The reform allows taxpayers to update payments online if circumstances change, but the details of how that process will work have not yet been published.
HMRC says the current system can leave a long gap between earning income and paying tax, sometimes as long as 22 months. It argues that smaller, more frequent payments could make budgeting easier and reduce the risk of tax debt. The system, which is around 30 years old, is intended to bring Self Assessment closer to the way tax is paid in some other countries.
The immediate task for affected drivers will be to understand their current Payments on Account and plan for the overlap before 2029. HMRC says taxpayers in financial difficulty should contact the department early to discuss their circumstances.
