Paying income tax in different ways

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 (e.g. bank interest income – 20% flat rate deduction)
• 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. See Pensioners and 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 actually 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).

For most people, 20% tax deduction on savings income will be correct, but:

• You may be due a refund if you qualify for the 10% starting rate or  if are not a taxpayer, or
• You may have more tax to pay if you are a higher rate taxpayer (total income over £34,370  in 2012/13)
• You may have more tax to pay if you are liable for the additional rate tax of tax (over £150,000 income – 2010/11 to 2012/13)

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. The tax bill for each tax year actually 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 2011/12 will be payable: 31 January 2012; 31 July 2012 and a balancing adjustment (following submission of the 2011/12 tax return) on 31 January 2013.  On 31 January 2013, Tony will also need to pay the first instalment for 2012/13. (See Self-employed section for details)