PLEASE NOTE: The charity TaxAid advises only those people on low incomes whose problems cannot be resolved with HMRC.

Paying income tax in different ways

Income Tax

Income tax can be collected during the year. For instance, you may have paid tax:

  • Under PAYE (Pay as you Earn), on a wage or salary as an employee
  • Under PAYE on your pension
  • As a subcontractor in the construction industry (20% flat rate deduction)
  • On savings income (note from 6 April 2016 most savings interest will not be taxed at source; up to 5 April 2016, most savings interest had 20% tax deducted at source)
  • As payments on account, if you are self-employed

If you have tax deducted under PAYE from an employment or pension, you should normally pay the correct amount of tax. But it is essential that you check your tax code(s). If your tax code is incorrect, you will not pay the right tax – you could be due a refund or face an additional bill. Employee pages for more details.

If you have paid tax under the Construction Industry Scheme (CIS), you will need to complete a tax return. The amount deducted at 20% is a rough ‘payment on account’.  It could be too much, or too little.  Your correct tax depends on the level of your income, any allowable expenses, and how much work you have done under CIS (see CIS Subcontractor section for details).

If you are self-employed, you need to ‘self-assess’ your tax by completing a tax return.  You will normally pay income tax, along with class 4 National Insurance, twice a year – 31 January and 31 July. (From 2015-16, class 2 National Insurance is also included in the January self-assessment bill).

The tax bill for each tax year comes in three parts – one bill on 31 January in that tax year, another on 31 July after the end of that tax year, and a balancing adjustment on the next 31 January (when the tax return is due and final tax bill calculated).

Example: Tony’s tax for 2015/16 will be payable: first payment on account due 31 January 2016; second payment on account due 31 July 2016 and a balancing adjustment (following submission of the 2015/16 tax return) on 31 January 2017.  On 31 January 2017, Tony will also need to pay the first instalment for 2016/17. (See Self-employed section for details)