Tax Update day normally takes place on the same day as the Autumn Budget date annoucement, but due to the Government personality changes, it was slightly earlier, The Treasury and HMRC issued their tax update. This year HMRC published a policy paper called Tax Update 2026, focusing on the themes of simplification, modernisation and fairness.
The paper has brought together a range of new consultations, reviews and proposals for areas of reform with the stated goals of reducing administrative burdens, improve certainty, fairness, and taxpayer experience. This is the second year we have had a similar “day” of policy announcements, many of which will be relevant to employers.
PAYMENT OF TAX
The proposals include two consultations suggesting changes to the timing and method of tax payments.
The most obviously relevant to employers, is the consultation on requiring both PAYE and VAT payments to be made by Direct Debit. HMRC would like to hear views on plans to make Direct Debit the default payment method for VAT and PAYE liabilities, subject to certain exceptions. Under HMRC’s plans, a penalty may be charged in future where payment is not made by Direct Debit.
The second consultation is looking at improving the timing of payments for Income Tax under self-assessment, which is relevant to anyone within self-assessment regime. The consultation includes proposals for individuals who have both Employment Income and Self-Assessment liabilities, to pay more of their tax liability as a deduction via their PAYE coding notice.
If the Income Tax change is implemented, it is likely to have an impact on employers, who may be required to process more PAYE coding amendments and deduct more Tax as a result. For small employers who currently qualify to make payments quarterly, the increased tax collections could mean that they find themselves needing to make monthly payments instead of quarterly payments. This could have a bearing on the cash flow of an employer.
EMPLOYMENT EXPENSES
There is a proposal to review how employees make claims for Tax Relief on employment expenses. Currently, where employees incur qualifying work-related expenses which are not reimbursed by their employer, the employee must submit a Self-Assessment return to claim Tax Relief once their allowable expenses exceed £2,500. For expenses below that level, employees can use a dedicated portal to claim relief.
HMRC could be looking to reduce its workload by requiring employees to claim work-related expenses directly through their employer, meaning the employer would then be responsible for checking and approving the claim. A similar change was introduced last year for home-working expenses. HMRC no longer needs to check the supporting details for these claims, as the employer is responsible for carrying out the necessary checks. This could potentially place a greater administrative burden on employers and may also create a situation where claims could be misleading or incorrectly approved.
Continuing the theme of employment expenses, the Government has also said it will review Benchmark Scale Rates (BSR) and Overseas Scale Rates (OSR). These flat rate payments that employers can use to employees for the cost of meals and other travel expenses, when they travel for work in the UK or overseas. The BSR apply in the UK and the OSR apply for travel outside of the UK. These are both intended as administrative simplifications, and the Government will look to see in both cased, if the figures need to be uprated, and if future simplification is possible by increasing alignment between OSR and BSR.
PAYE SETTLEMENT AGREEMENTS (PSAS)
The Government has also asked for feedback on the PSAs approval process, seeking to improve HMRC’s understanding of how they operate in practice, including how employers interpret the rules and where there may be complexity or uncertainty. At this stage there are no proposals to change how benefits or expenses are taxed.
A PSA is an agreement between the employer and HMRC that it will cover the costs of tax relating to employees, for example spending more than £150 per head on employee entertaining.
NATIONAL INSURANCE CONTRIBUTIONS (NIC)
The final consultation is in respect of NIC, and some of the complexities around NIC debt collection, looking at the design, operation and future direction of voluntary NIC contributions. Significant changes to overseas voluntary NICs took effect earlier this year, and this is looking more widely at those who opt to contribute voluntary.
Not part of the Tax Day Update, but rumours are circulating that HMRC plans to introduce monthly tax payments for self-employed workers from April 2029. Under the proposed system, the self-employed, landlords and those with investment income would move from the current system of two annual payments to a PAYE-style monthly collection method. However, during the transition period, taxpayers who already make advance payments could face overlapping bills.
Anyone who wishes to provide information has until 15 September 2026, the addresses to respond to and more detail on the areas under consultation can be found HERE.
