Knowledge Hub - Tax payments and repayments
How do people typically pay tax in the UK?
In the UK, the most common methods for paying tax are:
PAYE (Pay As You Earn) – This method is used for tax on employment income and private pension income. If you're employed, your employer automatically deducts income tax and National Insurance contributions from your salary before you receive it. Similarly, if you receive private pension income, your pension provider will automatically deduct income tax before you receive the payment. The amounts deducted are based on your income and sent directly to HMRC.
Self Assessment – This system is used by HM Revenue & Customs (HMRC) to collect income tax from individuals and businesses that don’t have tax automatically deducted from their wages, pensions, or savings. If you're self-employed, earn rental income, or make a profit from selling assets (like property or shares), you'll need to report this income and any capital gains through Self Assessment. Unlike employees, who have their tax deducted automatically through PAYE, those who fall outside the system must calculate their tax and report it to HMRC. Self Assessment allows you to file a tax return and ensure you're paying the right amount of tax based on your income and gains.
Could I be owed a tax repayment?
Yes, there are several situations where you might be owed a tax repayment. This can happen if you've paid more tax than you actually owe during the year. Here are a few common scenarios where you could be eligible for a tax repayment:
Overpayment through PAYE - If you’re employed, tax is usually deducted at source through the PAYE system. However, mistakes can sometimes happen, such as being on the wrong tax code or having multiple jobs with overlapping tax calculations. If you’ve paid too much, HMRC will typically correct it and issue a repayment. In some cases, HMRC may adjust your tax code for the following year to account for the overpayment, or they may refund the overpaid amount directly.
Overpayment through Self Assessment - If you file a Self Assessment tax return and discover that you’ve paid more tax than you owe - perhaps because you overestimated your income, didn’t claim all your allowable expenses, had an unexpected reduction in income, or paid too much through the Construction Industry Scheme (CIS) - you can request a repayment. HMRC will review your return and issue a refund if applicable.
Tax reliefs and allowances – You might also be owed a repayment if you didn’t claim all the tax reliefs or allowances you're entitled to, such as the Marriage Allowance, Blind Person’s Allowance, or tax relief on private pension contributions. In some scenarios you can also apply for a tax repayment for past years.
If you’re due a repayment, HMRC will typically make the payment directly into your bank account. A repayment is typically made within 6-8 calendar weeks, but this can vary depending on the reason for the repayment. You can check your PAYE tax code or review your Self Assessment return to see if a repayment is due.
When does tax need to be paid by?
If you are required to file a Self Assessment tax return then you may also need to make a tax payment. The normal due date for tax is 31st January after the tax year ends. However, there are exceptions to this:
1) If you owe more than £1,000 and less than 80% of the tax you pay is "deducted at source", then you will be required to make a further 50% Payment on Account ("POA") of tax for the following tax year (also due by 31st January after the tax year ends). This can result in effectively paying for 1.5 tax years at one payment deadline. The remaining 50% POA is then made at the following 31st July, with any remaining amount due by the next 31st January. This demonstrates the complexity of tax payments through Self Assessment, and the need for careful budgeting.
2) If you owe less than £3,000 in tax and you have a PAYE employment or pension, then you can opt for the tax to be deducted through your PAYE tax code in certain circumstances. This can be very useful to spread the tax payment over the following tax year, rather than having to pay it by the normal 31st January deadline.
3) The choice of accounting method used in self-employments and property rental businesses can also impact when tax is payable. The choice of accruals or cash accounting could accelerate or delay when tax is payable. When using cash accounting, the earlier/later payment of expenses and the timing of invoices being paid will also accelerate or delay when tax is payable.
4) It is also possible to agree a "payment plan" / "Time to Pay arrangement" with HMRC, which allows your tax payment to be spread over a longer period of time. It is not guaranteed that this will be agreed to, but it should be considered if you are not able to make a tax payment on time.
All of the above should be considered as part of budgeting for your tax payments. This avoids unnecessary stress, and potentially interest and penalties on late payments.
Please get in touch using the contact details here: www.taxready.co.uk if you require support with budgeting for your tax payments.
