If you pay tax through PAYE, you might not think much about Self Assessment. But if you have other sources of income—like property, investments, or self-employment—you could still need to file a Self Assessment tax return. The good news? Filing early could make paying your tax bill a whole lot easier.
What Are the Benefits of Filing by 30 December?
Normally, Self Assessment tax for the 2023/24 tax year is due by 31 January 2025. But if you file your tax return online by 30 December 2024, there’s an option to pay the tax you owe through PAYE, making it manageable and interest-free.
By paying through PAYE, you’ll spread your tax bill into smaller, interest-free instalments throughout the year, rather than making one big lump-sum payment by 31 January. This can be a real cash flow boost!
Who Can Pay Through PAYE?
You can take advantage of this payment option if:
- At least 80% of the tax you owe is already collected through PAYE, like from your employment or pension income.
- The total tax owed under Self Assessment is £3,000 or less.
However, you won’t qualify if:
- Your PAYE income isn’t enough for HMRC to collect the tax due.
- Paying through PAYE would mean more than 50% of your PAYE income goes to tax.
- You’d end up paying more than double your usual tax amount.
How It Works
If you qualify and opt in, HMRC will adjust your tax code to collect the tax you owe. Here’s a simplified example:
Imagine you owe £2,000 in tax from rental income and are a higher rate taxpayer (40%). HMRC would adjust your tax code by reducing your personal allowance. To collect £2,000, your tax-free allowance would be reduced by £5,000 (because 40% of £5,000 is £2,000). If your original tax code was 1257L, it would be adjusted to 757L.
When Will the Tax Be Collected?
The tax will be collected through PAYE in the 2025/26 tax year, starting from April 2025. Your adjusted tax code will ensure the tax is collected in 12 equal instalments, spreading the payments throughout the year.
Why Choose PAYE for Your Tax Bill?
Paying through PAYE offers some great advantages:
- No big lump-sum payment: You won’t need to pay your tax in one go by 31 January.
- Interest-free instalments: You pay in equal, interest-free instalments, unlike a Time to Pay arrangement, which attracts interest.
- Cash flow boost: Your first payment won’t be due until April 2025, giving you more breathing room.
Any Downsides?
The downside is that your take-home pay will be lower throughout the year, so make sure your cash flow can handle it.
Need Help with Your Tax Return?
If you’d like to explore paying your tax bill through PAYE or want help with your Self Assessment, don’t wait! The 30 December deadline will be here before you know it.
Get in touch with Jon Davies Accountants today to make sure your tax return is filed on time and your tax bill is managed in the most efficient way possible. We’re here to help you every step of the way!
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Any questions?
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