Every tax payer wants a simple and streamlined process to manage their tax bills. Now, a very prominent option will be to pay self-assessment through PAYE. As it allows the HMRC to collect the amount you owe through tax codes. Moreover, the costs get segmented across the year, removing the stress of a full payment.
What PAYE Means
As we know, PAYE stands for (Pay As You Earn). Basically, it's a system used by employers to deduct income taxes and national insurance before they pay you. Likewise, the HMRC sets up your tax code so that your employer follows it while running payrolls.
How Paying Through PAYE Works
So, you can choose to pay self-assessment through PAYE whenever you file your tax returns. Afterwards, HMRC will be adjusting your tax codes for the next year. Also your employer and pension provider will collect any extra tax via HMRC PAYE tax deductions protocol. Meanwhile, it works like a normal payroll only but the deductions are segments over twelve months. Plus, you can check for any changes made in your online tax accounts.
Who Can Use This Method
Most importantly, the HMRC allows you to pay self-assessment through PAYE only if you meet these requirements:
- Firstly, you owe less than £3,000.
- Secondly, you are already paying your tax through PAYE as an employee or pension holder.
- Then, you file your online return by 30 December (or paper return by 31 October).
Now, these are some of the strict rules you have to follow. Remember that you cannot make any part-payments to reduce your bills amounting below £3,000.
When You Cannot Use PAYE
So, in some cases the HMRC won’t allow you avail it if:
- Your PAYE income is too low for tax collections.
- You will be paying more than 50% of your PAYE income in tax.
- The deductions will double up than your usual tax.
- You have already paid part of the bill to stay under the £3,000 limit.
Now, if any of these conditions apply, then you have to use some other UK tax return payment options. It can be like card payments, bank transferring or a budget payment plan.
Pros and Cons of Paying Through Your Tax Code
Apparently, using PAYE makes budgeting easier. As, you avoid large lump-sum payments helping you with cash flows reducing missing deadlines.
Yet! There’s a drawback. Since, your employer will see changes in your tax code. It might signal that you filed a return or have some extra income. Now, this matters a lot if you prefer to keep your secondary job private. If you're earning side income from a hobby or freelance work, understanding your reporting obligations is crucial.
Read our guide: Do You Need a Side Business Tax Return UK?
HMRC Debt Collection
Meanwhile, If you miss a deadline or underpay HMRC debt collections via PAYE. Then, the HMRC can use your tax code to recover any unpaid amounts.
For detailed information on how PAYE tax codes work and what your code means, visit HMRC's tax codes guidance.
Conclusion
Evidently, choosing to pay self-assessment through PAYE is the simplest way to manage your tax bill. As, it segmentise your payments, while keeping you compliant and reducing deadline pressures. Still, it is not suitable for everyone!
As some tax payers prefer more control over how and when they pay.
So, if you need help with your Self Assessment then Let TaxSimba handle it for you! Get expert support today.