Should you pay your tax bill early?

If you've already totted up your self-assessment tax bill for 2024-25 and owe more than expected, you're not alone. 

Frozen thresholds helped push the UK tax burden to record-high levels. To illustrate the scale of how much we pay across all types of taxes, the Adam Smith Institute calculated that every penny the average person earned between 1 January and 11 June effectively went to HMRC.

The deadline for paying the tax you owe for 2024-25 is the same as for filing your tax return – 31 January 2026. But while it might be tempting to leave it until the last minute, there are several benefits to balancing the books early.

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Why are we paying more tax?

HMRC data shows £301.9bn was collected in income tax in 2024-25. That's 10% more than the previous year and up 37% since 2021-22. Income tax rates haven't budged during that time in England, Wales, and Northern Ireland. So what's going on?

The personal income tax thresholds were frozen in 2021 by the then-Conservative government and are due to remain unchanged until at least April 2028 – a policy the current Labour government has said it will maintain.

When wages rise, more and more people end up being pulled into higher tax bands and paying extra to HMRC. This phenomenon is called fiscal drag and is likely a key driver behind the bumper tax haul.

The Adam Smith Institute claims more of workers' hard-earned cash is going to the taxman as a result. The think tank calculated that, in 2025, money earned by the average worker up to and including 11 June went straight to HMRC. 

From 12 June, people are finally earning for themselves. But this date – dubbed Tax Freedom Day – is getting later every year. In 2024, it was 8 June, but in 2019 it was 22 May. 

Investors have also been hit by severe cuts to the dividend tax allowance since April 2023 – from £2,000 to £500. The capital gains tax allowance was also slashed from £12,300 to just £3,000, with higher rates for income from stocks and shares brought in last autumn. 

• Find out more: how to reduce your tax bill

4 reasons to pay your bill early

If you pay your taxes using self-assessment, then the final deadline for settling the bill is the same as filing – 31 January. 

That might sound like ages away, but there are a few advantages to getting on top of things now – especially if you think your bill is going to be bigger this year. 

Here are four reasons why early bird payments are a good idea:

1. Easier to budget

If you file your tax return and pay the bill now, then you'll know exactly how much money you've got for the rest of the financial year and you should be in a stronger financial position should the unexpected happen.

If you've been hit by changes to dividend tax and capital gains tax – or find yourself moving into a higher income tax band – then you'll have more time to budget for that as well. The best way to make sure you can afford your future tax bill is to put money aside each month as you earn it. 

You could consider starting a Budget Payment Plan with HMRC to help you stay on track. You'll be in control of how much you want to pay each month and can settle any difference when it comes to deadline day. You can find out how to set one up for next year on the HMRC website.

• Find out more: how much tax you pay

2. Avoid late penalties

HMRC takes a dim view of tardy taxpayers, and this year it's imposing heavier penalties for customers who are late paying. 

As of 6 April 2025, interest rates for late payments are now set at the Bank of England base rate plus 4% – up from base rate plus 2.5% last year. 

With the base rate currently at 4.25%, any money you owe the taxman will now rack up interest at a rate of 8.25%.

The longer you leave it, the higher the fine and the interest incurred.

As well as interest charges, you can also face the following penalties for late payments:

• After 30 days a charge equal to 5% of the tax outstanding
• After six months (31 July) a further 5%.
• After 12 months (31 January the following year)

These charges are separate, and in addition to, any charges for filing your tax return late. You can calculate your potential penalties using the gov.uk calculator.

3. You can prepare for payments on account

If you owe more than £1,000, and you aren't paying 80% or more of your tax bill via PAYE, you'll need to make what's known as payments on account. These are payable on 31 January and 31 July, and each one covers half your estimated tax bill for the current tax year. The estimate is based on your tax bill for the previous year. 

Spreading your bill throughout the year is intended to make tax easier to pay, but if you're new to the system that first instalment might come as a shock. Filing and paying well before the January deadline gives you more time to get ready for the second payment in the summer.

• Find out more: how to fill in a self-assessment tax return

4. Processing times won't catch you out

There are several ways to settle your bill, but pay attention to the time it takes to process the payment. 

To get the payment to its destination on the same or next day, use Faster Payment or Chaps, online, app and telephone banking services, debit card or business credit card.

Paying by Bacs or by cheque in the post can take around three days – but cheques could take much longer to arrive if there are postal delays. 

HMRC doesn't take personal credit card payments for tax, and you can no longer pay your tax bill at the Post Office. 

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What if you're struggling to pay?

If you're not able to pay the tax you owe, get in touch with HMRC as soon as possible to discuss your options. 

If you owe less than £30,000, you may be able to sign up for a payment plan. This allows you to pay in smaller instalments, but you’ll still be charged interest.

To set up a payment plan online yourself, you'll need to be within 60 days of the 31 January payment deadline and not have any other payment plans or debts with HMRC. For other circumstances, call the Payment Support Service on 0300 200 3835.

HMRC says there is no 'standard' arrangement and the time period for instalments will be decided on a case-by-case basis. 

If you don't contact HMRC, or refuse to pay your tax bill, you could face debt collection or be taken to court.