Act now to spread the cost of your tax bill

Tax life hack

If you pay tax through PAYE and also need to pay tax through self-assessment, you may be able to delay the payment and spread the cost through your PAYE code. For example, if you’re employed and have other taxable income from investments or a side hustle.

To use this payment method the amount you owe through self-assessment must be £3,000 or less for 2024/25.

This only works if your tax return shows an income tax liability of £3,000 or less. It isn’t possible to make a part payment to reduce your balance to £3,000 and have that collected through your PAYE code.

Extra conditions

To make sure your PAYE deductions aren’t excessive, HMRC will not use this method if any of the following apply:

• your PAYE income is not sufficient for HMRC to collect the tax that you owe
• more than 50% of your income would be deducted in tax; or
• it would result in twice as much tax as normal being deducted.

If you have low earnings from self-employment and have opted to pay Class 2 NI voluntarily, it cannot be collected through PAYE.

Little known deadline

If you meet the conditions, all you need to do is file your 2024/25 tax return online before the clock strikes midnight on 30 December 2025.

If you’re eligible and file your tax return by this deadline, HMRC will automatically collect the tax through your PAYE code.

If you meet the criteria but would prefer to pay in full, you need to opt out by checking Box 2 on page TR6.

How it works

HMRC will automatically adjust your 2026/27 tax code to collect the tax and any Class 4 NI that you owe through PAYE.

Example. Anne is an employee and also rents out a property. She filed her 2024/25 self-assessment tax return on 10 November 2025 and owes £1,200. Anne is a 40% taxpayer and is entitled to the standard personal allowance of £12,570 for 2026/27. Her allowances will be reduced by £3,000 (£1,200 x100/40) to give her a tax code of 957L for 2026/27. This means an additional £100 per month will be deducted from her salary throughout the 2026/27 tax year.

Advantages

Paying through PAYE allows the cost to be spread throughout the 2026/27 tax year. This relieves the pressure of having to pay the full amount by 31 January 2026.

Delaying the payment of your tax liability in this manner provides a significant cash-flow benefit as the tax due on income generated as long ago as April 2024 isn’t payable until April 2026.

Late payment interest isn’t charged when you pay through PAYE, unlike instalment plans under an HMRC time to pay arrangement.

You do of course need to factor in that your take-home pay will be lower as a result.