Most people think 31 January is the key Self Assessment deadline – and it is.
But if you’re employed or receive a pension and you’ve got some extra income (like self-employment, rental income or investments), there’s another important date to know: 30 December 2025.
File your 2024/25 tax return online by then, and you may be able to pay what you owe by adjusting your tax code, rather than as a lump sum on 31 January 2026.
That can be a big help for cashflow.
Who can pay their Self Assessment bill through their tax code?
HMRC will only collect tax through your code if all of the following are true:
- The total tax you owe under Self Assessment is £3,000 or less
- You already pay tax through PAYE (for example, you’re employed or receive a company pension)
- You file:
- A paper return by 31 October 2025, or
- An online return by 30 December 2025
One important point:
If you owe more than £3,000, you can’t just pay part of it to bring it down to £3,000 and have the balance coded out.
The £3,000 limit applies to the total you owe at the point HMRC look at your return.
When HMRC won’t let you pay through your tax code
Even if you tick all the boxes above, there are some situations where HMRC still won’t collect your Self Assessment bill through your tax code.
You won’t be able to use this option if:
- You don’t have enough PAYE income to collect the tax due
- It would mean you pay more than 50% of your income in tax
- It would mean you pay over twice as much tax as you normally do
In these cases, you’ll need to pay the tax directly through Self Assessment instead.
How does coding out your tax bill actually work?
If you file in time and meet the conditions, HMRC will usually automatically adjust your tax code – unless you’ve told them you’d rather pay your bill in the normal way.
Here’s what happens:
- HMRC work out how much tax you owe for 2024/25
- They reduce your tax-free allowances in your 2026/27 tax code
- The reduction is set so the extra tax taken through PAYE equals your Self Assessment bill
For example:
If you’re a 40% taxpayer and owe £1,000 under Self Assessment, HMRC will reduce your allowances by £2,500, because 40% of £2,500 = £1,000.
From April 2026, you’ll pay the extra tax in instalments via your salary or pension.
- If you’re paid monthly, you’ll effectively pay your 2024/25 bill in 12 monthly chunks over the 2026/27 tax year.
- There’s no separate payment to make by 31 January – it’s all dealt with through your code.
The advantages of paying through your tax code
There are a few big plus points:
- Cashflow benefit – instead of finding the full amount by 31 January 2026, you spread it across the whole 2026/27 tax year
- No interest – unlike a Time to Pay arrangement, there’s no interest charged on the amount coded out
- No extra setup – you don’t have to phone HMRC or arrange anything special; it’s handled automatically if you qualify
For many employees and pensioners with relatively small extra incomes, this can be a very convenient way to manage the bill.
The downside – reduced take-home pay
The main disadvantage is simple; your take-home pay goes down during 2026/27.
Because your tax code is reduced, more tax is taken from your salary or pension each time you’re paid. For some people, that regular reduction in net pay feels more painful than making a one-off payment.
So it comes down to preference and budgeting:
- Do you prefer to clear the bill in one go by 31 January?
- Or would you rather spread it interest-free over the following tax year and accept slightly lower take-home pay?
What should you do next?
If you have a mix of PAYE income and extra income, and expect to owe £3,000 or less under Self Assessment for 2024/25, then filing by 30 December 2025 could give you a much more flexible way to pay.
Not sure how much you’re likely to owe, or whether coding out is right for you?
Get in touch with Jon and the team if you’d like help with your 2024/25 tax return or want to explore whether paying via your tax code is a good option for you.
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Any questions?
If you’d like a meeting or a video call to discuss this, please get in touch with your favourite Liverpool accountant
- You can ring us on 0151 380 8080
- You can email us at gr****@*********************co.uk