Back

Payment of income tax

Introduction

This briefing provides an overview on how income tax is paid, when it should be paid and the penalties for late payment.

Core considerations  

  • Most people pay income tax through Pay As You Earn (PAYE) - the system an employer or pension provider uses to deduct income tax and national insurance contributions at source, before salary or a pension is paid.

  • The self-employed pay income tax through self-assessment returns.

  • Self-assessment tax returns must be filed and the tax paid by 31 January following the end of the tax year to which the income relates.

  • There are penalties and interest for late filing and payment.

Contents

Pay as you earn (PAYE)

Most people pay their income tax through PAYE - the system an employer or pension provider uses to collect income tax and national insurance contributions for HMRC before salary or pension income is paid. 

An individual’s tax code tells the employer and pension provider how much income tax to deduct. This may include an amount for any tax the individual needs to pay on their savings interest or on dividend income.

If an individual has already paid tax on their savings income, they can reclaim tax paid on their savings interest if it was below their allowance. Tax must be reclaimed within four years from the end of the relevant tax year.

HMRC do not need to be informed if dividends are within the individual’s dividend allowance for the tax year. If it is below £10,000 the individual must inform HMRC who will change the individual’s tax code, or they can complete a self-assessment return. 
 

Self-assessment tax returns

Individuals need to register for self-assessment if their income from savings and investments is over £10,000.  

Returns do not need to normally be completed if the only income is from a salary or pension. If an individual’s financial affairs are more complex, for example they are self-employed or have income over £100,000, they will need to fill in a tax return for the tax year concerned.

Individuals must usually register with HMRC for Self-Assessment by 5 October following the end of the tax year in which the income or gains first arose, otherwise penalties may arise. It must be filed with HMRC by 31 January following the end of the tax year to which the tax relates.

A tax return must also be completed if, in the last tax year, an individual was Self-employed as a sole trader and earned more than the annual £1,000 trading allowance: or a partner in a business partnership.  

A tax return may also need to be completed if an individual has any other untaxed income. Common situations include:

  • Company directors who have income on which tax is due that is not taxed under PAYE.
  • Those with property income – for example, renting a room, a garage, or a whole property to someone else, unless this income qualifies for rent-a-room relief or is within the annual £1,000 property allowance.
  • Individuals who want to claim tax relief on employment expenses over £2,500 in a year.
  • Those who pay the High-Income Child Benefit Charge on their child benefit.
  • Individuals who have untaxed savings income. 
  • Those who have capital gains tax to pay.
     

Payment deadlines

Usually self-assessment payments, which can be made up of tax, national insurance, and student loan repayments, are due by 31 January following the end of the tax year to which they relate. Therefore, tax due for the 2024/25 tax year is due for payment by 31 January 2026.

Some taxpayers need to make instalment payments towards their annual self-assessment bill for the following year. These are called payments on account. Generally, payments need to be made on 31 July in each tax year as well as on 31 January.
 

Penalties for late payments

There are penalties for any deadlines that are missed. There is a late filing penalty of £100 if the tax return is up to three months late. This increases if it is filed later or if the tax bill is paid late. Interest is also charged on late payments. 

 

Back