Pay Self Assessment through tax code: what 2029 changes mean

Did you know the government plans to make many people with PAYE income pay more of their Self Assessment through tax code deductions? These changes are scheduled for 2029 and could significantly affect how you manage your cash flow.

Industry commentators have already flagged this as a major shift. The government intends to move away from relying solely on the traditional January and July lump sums from Self Assessment customers. Instead, it wants to make it mandatory for many taxpayers with both Self Assessment and PAYE income to automatically pay more of their Self Assessment through tax code adjustments.

If you receive income through PAYE (such as a salary or private pension), but you also file a Self Assessment Tax Return for other earnings, this change is scheduled for April 2029 and could have a noticeable impact on your monthly finances.

In this article, we explain what is changing, who is likely to be affected, and what it could mean for your cash flow.

The change: expanding “coding out”

Currently, if you owe tax from Self Assessment (for example, from property or dividends) and you also have PAYE income, you generally have a choice:

1. Pay directly. You pay HMRC directly via the usual lump sums (a balancing payment in January, plus payments on account in January and July).
2. Code it out. Alternatively, if you file your return by 30 December and owe less than £3,000, you can choose to have that tax collected via your tax code.

However, the Autumn Budget 2025 revealed that from April 2029, a new version of this system is likely to become mandatory.

Based on recent professional analysis, from 2029 HMRC is expected to use your PAYE tax code to collect:

• Past underpayments from previous tax years; and
• Current-year estimated tax (based on your previous year’s liability).

If this goes ahead, it means your employer or pension provider will deduct more of your Self Assessment tax bill directly from your monthly pay, spreading the cost over the year rather than waiting for a lump sum.

Why is HMRC doing this?

The government describes this as a modernisation measure. It believes the change will help taxpayers avoid debt and even out their payments.

In the most recent January 2025 Self Assessment cycle, HMRC estimates around 1.1 million taxpayers missed the 31 January filing deadline. Many of these will also have missed their tax payments. By moving more of these liabilities into PAYE, HMRC secures the tax revenue earlier and more reliably.

For some taxpayers, this could be helpful. It acts a little like a “forced savings” plan and can reduce the panic that often sets in when a large tax bill arrives in January.

The problem with irregular income

Tax professionals have also highlighted a potential problem: seasonal or uneven income.

The new system is likely to base your PAYE deductions on your previous year’s income.

• Scenario: Imagine you do freelance consultancy work alongside your main job. You might land a big contract in December and receive a large lump sum payment then.
• The issue: Under the new rules, HMRC could start taking tax from your salary in April based on last year’s earnings. This reduces your monthly take-home pay for eight months before you have actually earned the extra money to cover it.

This misalignment could leave many taxpayers out of pocket early in the tax year. Effectively, you could find yourself paying Self Assessment through tax code deductions on income you have not yet received.

Creating a two-tier system?

Critics have raised concerns that this policy creates an uneven playing field.

Consider two business owners who earn identical profits. One works entirely for themselves, while the other takes on a small part-time job to top up their income.

Under the new rules, the person with the part-time job faces a cash-flow disadvantage. They will have their tax collected monthly, reducing their available working capital throughout the year. Meanwhile, the fully self-employed individual gets to keep that cash in their business until January.

While the government has signalled it wants “timelier” payments from those with only Self Assessment income as well, for the time being this creates a clear disadvantage for those with multiple income streams.

What happens next?

The government has promised a consultation in early 2026 to work out the mechanics in more detail. We expect this to be lively, as several key technical questions need to be answered:

• Will the limits change? Currently, coding out is limited by a graduated scale (often £3,000 for lower earners, rising to £17,000 for higher earners). Will these caps be adjusted?
• How flexible will it be? How quickly can a tax code be adjusted if your side income drops?
• Can you opt out? Will there be an easy way to object if your income is irregular?

Summary – will you have to pay Self Assessment through tax code deductions?

If you think you may have to pay more Self Assessment through tax code deductions, the following should help you:

• What – Mandatory requirement for many taxpayers with PAYE income to pay more of their Self Assessment through their tax code.
• Who – Taxpayers with both PAYE and Self Assessment income.
• When – Scheduled for April 2029.
• Action – None yet, but be aware that your cash flow cycle may change significantly in the future.

At THP, we keep a close eye on the “small print” so you don’t have to. We will be monitoring the 2026 consultation closely and will update you as soon as the new rules are finalised.

Worried about your tax liabilities or how these changes might affect you? Contact the team at THP Chartered Accountants today to discuss your tax planning.