06 Jul HMRC Announces Major Tax Change Plans: Bank Debt Collection and Pay-As-You-Go Tax on the Horizon
HMRC has just released its latest roadmap for the future of the UK tax system, and it is a big one.
On 23 June 2026, the government published its "Tax Update 2026," a suite of documents aimed at simplification, modernisation, and: importantly: fairness. If you are a small business owner, a sole trader, or running a limited company in the UK, these updates are going to change how you interact with the taxman over the next few years.
At Harrison’s Accountancy, we believe that 'forewarned is forearmed.' We aren't here to give you a fright; we’re here to give you the facts so you can plan ahead. Think of us as your external CFO: always looking at the horizon so you don’t have to.
So, what did yesterday's announcement actually say? Let’s break down the three most important changes and a few extra bits you might have missed.
1. HMRC May Soon Collect Tax Debts Directly From Your Bank Account
How will HMRC recover tax debts from those who can pay but won't?
One of the headline-grabbing proposals in the Tax Update 2026 is a new power for HMRC to recover lower-value tax debts directly from bank accounts via instalments.
Now, before you worry about HMRC dipping into your cash at random, let’s be clear: this is specifically aimed at "persistent non-responders." These are people or businesses who have the means to pay their tax but have repeatedly ignored communications from HMRC.
How it works
Under these proposals, if a taxpayer has an outstanding debt and has ignored all nudges, HMRC could set up an instalment plan that takes the money directly from their bank account. This would apply across all taxes: VAT, Corporation Tax, Income Tax, and so on.
Why this matters
HMRC is trying to move away from heavy-handed enforcement (like sending in bailiffs) for smaller debts, preferring a more automated, digital approach. For the vast majority of our clients, this will never be an issue. Why? Because we make sure your returns are filed correctly and you know exactly what you owe and when.
However, it highlights the importance of staying on top of your correspondence. If you ever find yourself struggling to pay a tax bill, the worst thing you can do is stay silent. HMRC is usually very open to Time to Pay arrangements, provided you talk to them.
2. The Move to "Pay-As-You-Go" Tax from April 2029
Could your self-assessment tax bill become a monthly or quarterly instalment?
This is perhaps the most fundamental shift for sole traders and those with rental income. Currently, most people under Self Assessment pay their tax in two big chunks: 31 January and 31 July (the payments on account).
From April 2029, the government plans to introduce a "Pay-As-You-Go" model for Income Tax Self Assessment (ITSA) taxpayers who also have PAYE income.
What is changing?
Instead of waiting until the end of the year to settle up, taxpayers will pay their forecasted tax bill in-year. Essentially, HMRC wants to align the way self-employed people pay tax more closely with the way employees do through PAYE.
Why the shift?
The goal is to help people manage their cash flow better and prevent that "January dread" when a massive tax bill arrives. By paying as you earn, you stay up to date. However, we know this represents a massive change in how you manage your business finances.
As your small business accountant, we’ll be here to help you navigate this transition. Forecasts will become more important than ever, and having a proactive accountant who understands your business's peaks and troughs will be essential.
3. Peppol E-Invoicing: The End of the PDF Invoice?
Is your business ready for mandatory electronic VAT invoicing by 2029?
Another major pillar of the Tax Update 2026 is the formalisation of the UK's e-invoicing strategy. From April 2029, all VAT invoices must be electronic.
What is Peppol?
You might hear the term "Peppol" mentioned a lot. It stands for Pan-European Public Procurement On-Line, but don't let the name fool you: it’s becoming the global standard for sending invoices digitally between different software systems.
Instead of emailing a PDF (which then has to be manually entered or "read" by a computer), e-invoicing allows your accounting software to "talk" directly to your supplier's or customer's software. The invoice just appears, perfectly coded, in the right place.
The Xero Advantage
The good news? If you are already using Xero, you are ahead of the curve. Harrison’s Accountancy are Xero Platinum Champions, and Xero is already a leader in the Peppol network.
By 2029, this won't be an optional "nice to have": it will be the law for VAT-registered businesses. Moving to digital bookkeeping now isn't just about saving time; it's about future-proofing your business against the next wave of Making Tax Digital changes.
4. The "Quick-Fire" Round: Other Notable Changes
While the items above are the heavy hitters, there were a few other nuggets in the June 23 update that might affect you:
- ISA Anti-Circumvention: The government is cracking down on people trying to "game" the ISA system. There will be a new 22% charge on cash held in non-cash ISAs if it’s found to be circumventing the rules. Keep your savings simple!
- VAT Marketplace Liability: The rules that make online marketplaces (like Amazon or eBay) liable for the VAT on sales are being extended to more UK-based businesses. If you sell through a platform, double-check your VAT status.
- QIPs Relief on R&D Credits: There’s a bit of good news for innovative companies! Quarterly Instalment Payments (QIPs) relief is being introduced for certain R&D tax credits, which should help the cash flow of larger, tech-heavy firms.
Why Having a Proactive Accountant Matters More Than Ever
The tax system isn't getting simpler: it’s getting more digital.
HMRC’s clear direction is toward a system that is real-time, digital, and automated. For some, this is stressful. The thought of HMRC having more access to bank data or changing payment dates can be overwhelming.
But it doesn't have to be.
At Harrison’s Accountancy, we take the stress out of the numbers. We’ve seen these shifts coming for years. Whether it's helping our media and entertainment clients manage their unique income streams or ensuring a local consulting business is fully Xero-compliant, our goal is to ensure you never have to worry about a surprise letter from HMRC.
Our 3-Step "Future-Proof" Plan for Clients:
- Switch to Xero Now: If you aren't on the cloud yet, now is the time. It makes 2029's e-invoicing and Pay-As-You-Go changes a breeze.
- Regular Management Accounts: We don't just look at your numbers once a year. By doing monthly or quarterly management accounts, we can forecast your tax and prevent any debt issues before they start.
- Direct Communication: If you get a letter you don't understand, send it to us. We handle the talking so you can handle the growing.
Need a hand navigating the 2026 Tax Updates?
Whether you’re a sole trader worried about Self Assessment or a limited company looking for a more personalized service, we are here to help.
Contact Harrison’s Accountancy today and let’s make sure your business is ready for 2029 and beyond.
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