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If you pay tax through PAYE, such as when you’re an employee or a pensioner, you might still need to file a self-assessment tax return. This happens if you earn other income, like from property, investments, or self-employment. One advantage of PAYE is that if at least 80% of your tax is collected through it, you can avoid making payments on account even if your Self Assessment tax bill exceeds £1,000.
Usually, Self-assessment taxes are due by 31 January after the tax year ends, so for 2023/24, the payment deadline is 31 January 2025. However, filing your return early may allow you to spread your payment through PAYE by adjusting your tax code.
The 30 December Deadline
To pay your Self-assessment tax through PAYE, you must file your online return by 30 December 2024. If you submitted a paper return before the 31 October deadline, you may also qualify. But only some are eligible. You cannot pay through PAYE if:
- Your PAYE income isn’t enough to cover the tax.
- Deducting the tax would take more than 50% of your PAYE income.
- The tax owed is more than twice your normal PAYE tax bill.
Additionally, the tax owed under Self Assessment must be £3,000 or less. Partial payments aren’t allowed to bring the amount down to £3,000 for PAYE purposes.
If your return is filed on time, your bill is £3,000 or less, and you already pay tax through PAYE, HMRC will adjust your tax code automatically unless you choose not to. If you aren’t eligible to use PAYE, you’ll need to pay your tax by 31 January 2025 or set up a Time to Pay arrangement.
How PAYE Collection Works
HMRC adjusts your tax code to reduce your tax-free allowances. For example, if you owe £2,000 in Self Assessment tax on rental income and are taxed at 40%, your tax code will be adjusted to account for £5,000 of income (£2,000 ÷ 40%). If your personal allowance is £12,570, your new tax code will be 757L.
The adjustment applies to the tax code for the 2025/26 tax year. The tax owed for 2023/24 is then collected in 12 equal instalments across the 2025/26 tax year.
Benefits of Paying Through PAYE
Paying tax through PAYE lets you spread the cost over the year in interest-free instalments, unlike a Time to Pay arrangement, which charges interest. This can ease cash flow because the first payment isn’t due until April 2025, giving you more time to manage your finances.
However, your monthly take-home pay will be reduced as the instalments are deducted, which may affect your budget.
If you miss the 30 December deadline, you won’t be able to pay your Self Assessment tax bill through PAYE. Instead, the full amount will need to be paid by 31 January 2025. You can set up a Time to Pay arrangement with HMRC if you cannot pay the full amount by the deadline.
Yes, you can use PAYE to pay Self Assessment tax for income from various sources, like property and investments, as long as the total amount owed is £3,000 or less. However, all other PAYE eligibility criteria must also be met.
If your bill exceeds £3,000, you won’t be eligible to use PAYE for payment. You must pay the full amount by 31 January 2025 or explore options like a Time to Pay arrangement with HMRC to spread the payments.
Adjusting your tax code reduces your tax-free allowance, which lowers your take-home pay. For example, if your tax code changes from 1257L to 757L, more tax will be deducted from your salary each month until the owed amount is fully paid.