How to pay your income tax bill

You will likely have to pay income tax if you receive income from the UK as a taxpayer. While income you get might come from self-employment or wages, income from other sources is also subject to income taxes.

There are a variety of grant types:

– The majority of pensions

– Rent income

– Untaxed income above £2,500 (such as tips etc.)

Income tax allowances

There are many tax allowances that can reduce your tax bill.

Personal Allowance: The first £12,570 of your earnings during a tax year will not be subject to tax.

Trading allowance: If your self-employment income is less than £1,000, you won’t have to pay any tax.

Dividend Allowance: The dividend allowance for 2022/23 is £2,000.

You can use more than one allowance in the same calendar year, which is really great news. You could, for example, earn £12,000 wages and get a £1,000 dividend pay out, without having to pay any tax.

What amount of income tax will you pay?

The income tax brackets are used to calculate the amount of income that is subject to income tax. This means you will pay tax at the same rate for all income earned within a bracket and at a different rate if you have income from the next bracket.

You don’t have to earn more than the threshold for your next tax bracket. Only the income that is higher will be subject to the rate. This article explains more about tax rates and tax thresholds.

How can I pay my income tax?

The majority of income tax is paid by the employer. They deduct it from their wages, and pay it to HMRC. You will need to file a Self Assessment tax return for most income types.

You have until:

31 October if you send a paper form via the postal mail

31 January is the deadline for online returns

No matter how you send your return, the payment deadline is 31 January.

A sole trader must file a self-assessment return on paper by 31 October 2022. They also need to pay any tax owed by 31 January 2023. Online filings must be made by the 31st January 2023.

If someone is making advance payments towards income tax bills (known as payments on accounts), there is an additional payment deadline of 31 July.

There are pros and cons to paying your income tax bill earlier

Your Self Assessment tax return can be submitted as soon as the tax years it is relating to ends. There are both positives and downsides to this.

Benefits of paying your income taxes early

Avoid the fearsome late payment penalty. You can avoid any penalties from HMRC by paying your tax bill early.

The money won’t be tempting to spend. You won’t be tempted to spend the money if you have settled your tax bill in advance.

More time for questions. HMRC is known for being busy as the deadline draws near. It is a good idea to contact HMRC at a quieter time if you feel you may need their assistance.

Any tax refunds will be processed sooner. If you file early, your refund will be sooner if you have overpaid tax.

A large tax bill won’t be a burden on your new year. You’ll be weighed down by the tax bill if you don’t pay it by the January 31st deadline. Some people prefer to have it done in advance.

Paying income tax early can have negative consequences

There are few cons to getting your income tax bill paid early. Here are some things to keep in mind:

Don’t rush! It can be tempting to rush your tax bill and tax return once you have read all the benefits. It’s important to not rush the process, as you might make mistakes or miss tax relief opportunities.

First, assess your cash flow. It is important to determine if you have the cashflow to pay off your debts. You might have to re-evaluate your priorities if you find something that requires investment sooner than the deadline.

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