The deadline for filing online returns and payment may not be until the end of January, but if you want the option to pay your tax for 2021-22 via PAYE then you must submit your tax return by 30 December.
Indeed, the earlier you file, the more choice you have over how to settle the bill with HMRC. This is especially true if you are worried you won't be able to pay what's owed in one lump sum.
Here, Which? outlines four ways you can pay your tax bill, and what happens if your payment is late.
1. Use your PAYE tax code
If you're an employed worker already paying tax through PAYE, but have to submit a tax return to declare income outside of your main job - from a 'side hustle' or rental income, for example - then this might be an option.
Other additional sources of income may include:
- Covid-19 self-employed income support scheme grants paid during the 2021-22 tax year
- investment income
- pension income
- child benefit, if you or your partner earns more than £50,000 and need to repay the high-income child benefit charge
- capital gains after selling certain assets, such as a second property.
As long as you owe less than £3,000 in tax, you can settle your tax liability in instalments over 12 months. These will kick off at the beginning of the next financial year, which starts on 6 April 2023.
The money will come out of your wages or pension via your tax code. Just be sure to allow for the extra cash coming out of you monthly salary.
However, to take advantage of this option, you will need to have filed online by 30 December 2022.
It's also good idea to check that you are on the right tax code - you may be paying more than you should and, if so, will need to contact HMRC to adjust it.
2. Pay in full by 31 January 2023
You may prefer to pay the tax due in one go, which needs to have reached HMRC by the payment deadline of midnight on 31 January.
Although as long as you have already filed your tax return, you can pay any time before that date. In fact, nearly 66,500 people filed their 2021-22 tax return on the first day of the new tax year (6 April), according to figures from HMRC.
There are several ways to settle your bill, but pay attention to the time it takes to process the payment.
To get the payment to its destination on the same or next day, use Faster Payment or CHAPS, online and telephone banking services, debit card or business credit card.
Paying by Bacs or by cheque in the post can take around three days - but cheques could take much longer to arrive if there are postal delays.
HMRC doesn't take personal credit card payments for tax, and you can no longer pay your tax bill at the Post Office.
3. Use the HMRC app
If you'd prefer, you can also pay your self-assessment bill via the free HMRC app.
According to tax office stats, 50,000 customers have already used the app to make tax payments since February 2022.
The app can also help with information such as your UTR number, National Insurance number, tax credit payments and any PAYE information.
undefined4. Pay off in smaller chunks with Time to Pay
If after filing your self-assessment tax return you think you’ll struggle to settle the bill with a lump sum, you can ask HMRC for a Time to Pay arrangement. This allows you to pay in instalments throughout the year.
However, note that you'll still be charged interest on any tax that's outstanding after 31 January.
To set up a payment arrangement, you'll need to be within 60 days of the 31 January payment deadline, owe less than £30,000, and not have any other payment plans or debts with HMRC. You can set up a payment plan set up a payment plan online or call the Payment Support Service on 0300 200 3835.
HMRC says there is no 'standard' arrangement and the time period for instalments will be decided on a case by case basis. The important thing is to contact the tax office as soon as possible to discuss your individual circumstances and come up with a suitable plan. Make sure you have your National Insurance number and/or Unique Taxpayer Reference (UTR) number to hand.
To pay off your next tax bill
It's also possible to set up a Budget Payment Plan, where you pay monthly or weekly installments towards your next tax bill. This will reduce what you owe by the time the next payment deadline comes around.
5. You may need to make 'payments on account'
These are advance payments towards your tax bill, payable by 31 January and 31 July each year, called 'payments on account'. These mostly applies to self-employed workers.
You'll be liable to make these payments unless your last self-assessment tax bill was less than £1,000 or you’ve already paid more than 80% of all the tax you owe – for example, through your PAYE tax code.
Each payment is calculated at half your previous year’s tax bill. If your payments on account don’t cover your full tax bill for the subsequent tax return, you must make a ‘balancing payment’, which is due by 31 January.
Note that when you are asked to make payments on account for the first time, you may need to pay your full bill for the previous year’s tax return, plus 50% of next year’s bill - all by the same 31 January deadline.
The payment can come as a surprise to newly self-employed people - so filing your self-assessment well ahead of the deadline will give you more time to decide how to pay it.
- Find out more: what are payments on account?
What happens if your tax payment is late?
Unless you have what HMRC considers a ‘reasonable excuse’ – such as the death of a partner or an unexpected hospital stay around the time of the deadline – failure to file your tax return by 31 January will incur an initial £100 penalty if it is up to three months late, increasing to £10 per day (for up to 90 days) if a return is more than three months late. Further penalties are triggered if your return is more than six or 12 months late.
On top of these, you’ll likely also face late payment charges. The deadline for paying your bill is the same as the online filing deadline. You’ll be charged daily interest (at the Bank of England base rate plus 2.5%) from the date the payment was due. The longer you delay paying your bill, the more penalties you'll face.
If you have any concerns about submitting your tax return or paying your bill, contact HMRC promptly (whether that’s before or after the deadline).
- Find out more: late tax returns and penalties for mistakes
File your tax return with the Which? Tax calculator
If you haven't submitted your 2021-22 tax return yet, the Which? tax calculator could help.
The online tool is easy to use, jargon-free and can help tot up your tax bill - plus, it also suggests expenses and allowances you might have missed.
Then, when you're ready, you can also submit your return directly to HMRC.
source https://www.which.co.uk/news/article/five-ways-to-pay-your-self-assessment-tax-bill-aL6Vp1o37Zns