File Early To Pay Tax Due Under PAYE

If you owe tax for 2021/22 and you also pay tax under PAYE, for example, if you are an employee or because you receive a company pension, you may be able to opt to pay the tax that you owe through PAYE if you file your self-assessment tax return by the earlier date of 30 December 2022.

Key dates
The deadline for filing your 2021/22 self-assessment tax return online is 31 January 2023. However, if you want the tax that you owe for 2021/22 to be collected through PAYE by adjusting your tax code, you must file your return by the earlier date of 30 December 2022.

This note explains whether you are eligible to pay your self-assessment tax bill in this way.

Eligibility conditions
You can only pay your 2021/22 self-assessment tax bill through PAYE if all of the following conditions apply:
• you owe less than £3,000;
• you already pay tax through PAYE, for example, as an employee or on a company pension;
• you filed a paper tax return by 31 October 2022 or a tax return online by 30 December 2022.
If your tax self-assessment tax bill for 2021/22 is more than £3,000, it must be paid in full by 31 January 2023, unless you have agreed to a Time to Pay arrangement with HMRC. It is not possible to part pay the bill, leaving £3,000 to be collected through PAYE.

When tax cannot be collected through PAYE
In certain circumstances, even though the above conditions are met, it will not be possible for the self-assessment tax that you owe to be collected through PAYE. This is the case if:

• you do not have sufficient PAYE income from which to collect the tax;
• collecting the tax through PAYE would result in your paying more than 50% of your income in tax;
• collecting the tax through PAYE would double the tax that you normally pay; or
• your self-assessment tax bill was more than £3,000 but you have made a payment reducing the balance to £3,000 or less.
The tax that can be deducted under PAYE is capped at 50% of your pay. This is known as the overriding limit.

These rules mean that you may not be able to pay your tax through PAYE if your main source of income is from self-employment and you have a small amount of PAYE income, for example, from a part-time job. Where this is the case, you must pay what you owe in full by 31 January 2023 (or agree a Time to Pay arrangement with HMRC).

Automatic collection through PAYE
If you have submit your 2021/22 tax return online by 30 December 2022 or you filed a paper return by 31 October 2022 and you meet the above conditions, HMRC will automatically adjust your tax code to collect any tax that you owe for 2021/22 in this way, unless you have indicated on your tax return that you do not want to pay your tax through PAYE.

Tax for 2021/22 is collected through PAYE via an adjustment to your 2023/24 tax code. This means that in effect you pay your 2021/22 tax bill in instalments throughout the 2023/24 tax year. The number of instalments will correspond to the frequency with which you are paid. For example, if you are paid monthly, your monthly take home pay for 2023/24 will be reduced by 1/12th of your 2021/22 self-assessment tax bill.

Where the qualifying conditions are met, filing your return by 30 December 2022 allows you to delay payment and access an instalment option without having to agree a Time to Pay arrangement.

Please call if you need help with any of the issues raised in this alert.