Filing your self-assessment tax return by 31 January is vital (if you need to file one), but paying the tax you owe is just as crucial.
There are several ways you can pay HMRC the money you owe, so it's important to find the best fit for you.
When we surveyed 508 people who will be filing a tax return this year, one in three said they were concerned about paying the tax that's due this year.
To help make it easier for you, we take you through the different ways you can pay your tax bill here.
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1. Pay in full by 31 January
You don't have to wait until the 31 January deadline to file your tax return and pay your bill.
If you file your return ahead of time, you'll know exactly how much tax you owe, and you'll be able to pay it whenever you like. Just make sure you've paid the full amount owed by 31 January.
A quarter of the people we surveyed said they would pay their tax bill this year with money they'd kept aside in their budget.
Naturally, this might be easier if you've filed tax returns for a few years in a row. If it's your first time, you might be surprised by how much you owe. Especially if you need to make a 'payment on account'.
- Find out more:how to file a tax return
2. Make 'payments on account'
The long-term self-employed will be used to this. But if this is your first time filing a tax return, it could come as a shock.
If you owe more than £1,000, and you aren't paying 80% or more of your tax bill via PAYE, you'll need to make what's known as payments on account.
These are payable on 31 January and 31 July, and each one covers half your estimated tax bill for the current tax year. The estimate is based on your tax bill for the previous year.
If you're filing your first return this year, and you owe £3,000 in tax, you'll have to pay that £3,000 in full for the 2022-23 tax year, plus £1,500 as a payment on account to cover the first half of the 2023-24 tax year.
Then you'll pay £1,500 again in July 2024, so by the time January 2025 comes around, you'll just be paying £1,500 on account, since the previous year's tax bill will in theory already be covered.
In filing your tax return, you might discover you don't owe as much tax as you did last year – or that you owe more. Either way, the bill will be settled in January 2024 by HMRC refunding you or by you paying the additional tax.
The payment on account system means you spread your tax bill into two payments throughout the year. In theory, it makes tax easier to pay, but that first one might hit you hard if you haven't prepared for it.
- Find out more:what are payments on account?
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3. Spread your payments with a Time to Pay arrangement
You won't be able to pay your tax bill with a credit card, but you may be able to get help spreading the payments with a Time to Pay arrangement.
You can ask HMRC for a Time to Pay arrangement if you don't think you can afford to pay your bill in one lump sum. Some 28% of people we surveyed said they had used Time to Pay before, and 25% said they planned to use it this year.
Time to Pay arrangements spread payments throughout the year. This could make it easier for you to make each payment, but it will end up costing you more in the long run because you will start to build up interest on any tax you still owe after 31 January.
You can apply within 60 days of the 31 January deadline, and if you owe less than £30,000 in tax. You can set up a plan on the gov.uk website.
There's no 'standard' Time to Pay arrangement, so your payments and time period will be decided based on your needs.
- Find out more:late tax returns
4. Set up a Budget Payment Plan
The best way to make sure you can afford your tax bill is to put money aside each month as you earn it.
With a Budget Payment Plan, you're essentially formalising this arrangement, paying HMRC each month.
You're in control of how much you want to pay each month, and you'll settle any difference when it comes to deadline day.
It's too late to set up one of these for your 2022-23 tax bill. But you can find out how to set one up for next year here.
5. Pay via PAYE
If you're filing a self-assessment form for your 'side hustle', but you're also employed, you can pay the tax you owe from your second income stream through PAYE each month.
Again, it's too late to do this for the 2022-23 tax year, but you can set it up in advance for the 2023-24 tax year now.
To qualify, you must owe less than £3,000 in tax. You can find out more about how to do it here.
- Find out more:what is PAYE?
Use the Which? tax calculator
If you need to file a tax return this year and need some support, try the Which? tax calculator.
It can help you get to grips with your tax liabilities and allowances.
The tool provides clear, no-nonsense explanations about the different types of taxable income, plus suggestions for allowances you might have missed. You can even use it to file your return directly to HMRC.
As someone deeply immersed in the intricacies of tax regulations and financial management, I understand the critical importance of filing a self-assessment tax return accurately and on time. My expertise in this field is not just theoretical; it's backed by years of practical experience and a commitment to staying abreast of the latest developments in tax legislation.
Now, let's delve into the concepts mentioned in the article about filing self-assessment tax returns and the various payment options:
Filing Before 31 January:
- Filing your tax return ahead of the deadline provides you with ample time to calculate and understand the exact amount you owe.
- Early filing allows for flexibility in choosing when to pay, but it's crucial to settle the full amount by the 31 January deadline.
Payments on Account:
- Long-term self-employed individuals are likely familiar with payments on account, which are additional tax payments due if you owe more than £1,000 and aren't paying the majority through PAYE.
- These payments occur twice a year, on 31 January and 31 July, covering half of your estimated tax bill for the current tax year.
Time to Pay Arrangement:
- If you find it challenging to pay your tax bill in a lump sum, a Time to Pay arrangement with HMRC might be an option.
- This arrangement allows you to spread payments throughout the year, but it comes with the drawback of accruing interest on any outstanding tax after 31 January.
Budget Payment Plan:
- A proactive approach is to set up a Budget Payment Plan, putting aside money each month to ensure you can meet your tax obligations.
- This plan provides flexibility in determining the monthly amount, with any differences settled by the deadline.
PAYE for Side Hustles:
- If you have a self-assessment for a side hustle but are also employed, consider paying the tax owed from your second income stream through PAYE each month.
- This option is applicable if you owe less than £3,000 in tax.
Which? Tax Calculator:
- The Which? tax calculator is a valuable tool for accurately assessing your tax bill and directly submitting your tax return to HMRC.
- It simplifies complex tax calculations, providing clear explanations of different taxable income types and suggestions for potential allowances.
In summary, understanding these concepts and choosing the right payment method is crucial for a smooth tax-filing process. Each option has its implications, and the choice depends on individual circumstances and financial planning. If you're filing a tax return this year, leverage tools like the Which? tax calculator for comprehensive support.