The deadline to submit your tax return and pay your tax bill for 2019-20 is fast-approaching.
Both your return and your payment must be with HMRC by 31 January 2021 unless you have an alternative arrangement in place.
After a tough year, the last thing anyone wants to be faced with is avoidable tax fines, so we’ve come up with five ways to pay your tax bill, and outline what happens if your payment is late.
1. Pay in a lump sum by 31 January 2021
A lot of people opt to pay for their self-assessment tax all in one go, which is due by the end of January each year.
The tax you owe is based on what’s in your tax return, which takes in your income, expenses and allowances.
If you submit your return early, it gives you much more time to organise your tax payment.
For instance, as long as you had all of the required figures to hand, you could submit your tax return any time from 6 April onwards (once the tax year you’re submitting for has ended), get the figure of the tax you owe, and then spend several months putting money aside to pay the bill in January.
- Find out more: how to fill in a self-assessment tax return
2. Use one of these payment methods
Unless you’re paying your self-assessment bill via PAYE (see below), you’ll need to choose one of the following payment methods accepted by HMRC – being sure to factor in the time each one can take to go through.
If you choose a payment method that takes several days to reach HMRC, and it’s not received by 31 January, you may still incur a penalty.
Same-day or next day:
- online or telephone banking
- debit card online
- at your bank or building society.
Three working days:
- direct debit (if you already have one set up with HMRC)
- cheque through the post (note this may take longer due to delays related to the coronavirus pandemic).
Five working days:
- direct debit (if you haven’t set one up with HMRC before)
Note that HMRC no longer accepts tax payments via credit card, and you can no longer pay at the Post Office
As of November 2020, payments made with a business debit card will attract a fee, which varies depending on your provider.
3. Pay through your PAYE tax code
If you pay tax via PAYE but submit a self-assessment tax return to declare other forms of income, it may be possible to pay the extra tax you owe through your tax code.
To take advantage of this, you must:
- submit your online tax return by 30 December, or have already submitted your paper tax return by 31 October,
- owe less than £3,000 in tax,
- already pay tax through PAYE.
This option has the benefit of splitting the tax you owe into much smaller chunks that are taken from your PAYE income before you receive it, but it does obviously mean that your monthly income will be reduced – so make sure you can still cover your essential costs before going for this payment option.
- Find out more: what is PAYE?
4. Pay via payment on account
If you’re self-employed, HMRC may ask you to make your tax payments in advance by payment on account. This involves making two payments – one by 31 July and one by 31 January of the following year, where you pay half of your estimated tax bill that’s due on the 31 January.
At this point, you may have to make an additional balancing payment if the estimated bill didn’t cover the amount of tax you owe, or you may get a refund if you’ve paid too much.
Due to the coronavirus pandemic, the government allowed self-employed taxpayers to defer the payment due on 31 July 2020. However, unless you have an alternative payment arrangement in place, that means the whole lump sum of tax for 2019-20 will now be due by 31 January 2021.
- Find out more: how to file a self-employed tax return
5. Use a Time to Pay arrangement
If you know you’re going to struggle to pay your tax bill by 31 January 2021, it’s important to contact HMRC as soon as possible.
You may be eligible for a Time to Pay payment plan if:
- you owe less than £30,000 in tax
- you have signed up to gov.uk and have a government gateway ID
- you have filed your 2019-20 tax return and know how much tax you owe
- you don’t have any outstanding tax returns, or owe any other money to HMRC.
Under Time to Pay, you’ll be able to split the tax you owe into smaller instalments that are spread over the 12 months to January 2022, when the full balance must be settled. However, you are charged 2.6% interest on the outstanding balance from 31 January 2021.
If your tax bill is more than £30,000, or you need more than 12 months to pay what you owe, you may be able to get a different instalment plan by calling the Payment Support Service on 0300 200 3835.
What happens if you’re late paying your tax bill?
If you don’t have an agreement in place with HMRC before midnight on 31 January 2021, the tax authority will be expecting your payment.
If you don’t pay by this time, you can expect to receive fines that quickly ramp up the longer you leave making a payment.
You’ll be charged interest on your outstanding tax bill from 31 January; the current interest rate is 2.6%.
If your payment is more than 30 days late (that is, you don’t pay your tax before the beginning of March 2021), you could face the following additional penalties:
- After 30 days: a charge equal to 5% of the outstanding tax
- After six months (31 July): a further 5% charge
- After 12 months (31 January 2022): an additional 5% charge.
If you’re also late submitting your tax return or submit one with a number of mistakes, HMRC could charge additional fines.
- Find out more: late tax returns and penalties for mistakes
Use the Which? tax calculator to help with your tax return
If you’re yet to submit your 2019-20 tax return, the Which? tax calculator could make the process much easier.
The online tool is jargon-free and can help you tot up your expenses, work out your tax bill and submit it directly to HMRC.
- Find out more: submit your tax return today with the Which? tax calculator