File Early to Spread Your Tax Bill Through Your Tax Code

If you file a Self Assessment tax return, the usual deadline for the 2024/25 tax year is 31 January 2026.
However, there’s an advantage to filing earlier — by 30 December 2025 — if you’re eligible to have your tax collected through your PAYE tax code instead of paying it directly.

This option can be helpful for those who are employed or receive a pension but also have extra income from self-employment, property, or investments.

Who Can Pay Through Their Tax Code

You can only use this method if all the following conditions are met:

• The total tax you owe under Self Assessment is £3,000 or less.

• You already pay tax through PAYE (for example, from your job or pension).

• You submit your return by 31 October 2025 (paper) or 30 December 2025 (online).

Keep in mind that you can’t make a partial payment to reduce your bill below £3,000 just to qualify — the amount owed must already be within that limit.

When You Cannot Use This Option

Even if you meet the above criteria, HMRC will not collect your tax through your code if:

• Your PAYE income isn’t high enough to cover the amount due.

• Doing so would mean paying more than 50% of your income in tax.

• You would end up paying over twice as much tax as usual.

How the Process Works

If you qualify and file your return on time, HMRC will automatically adjust your tax code — unless you opt out.

They do this by reducing your tax-free allowance for the next tax year (2026/27). The reduction depends on how much you owe and your tax rate.

For example:
If you owe £1,000 and are taxed at 40%, HMRC will reduce your allowances by £2,500 (since 40% of £2,500 = £1,000).

This means you’ll repay your 2024/25 tax in 12 monthly instalments through your salary or pension over the 2026/27 tax year.

Benefits of Paying via Tax Code

Improved Cash Flow – Instead of paying your tax bill in one lump sum by 31 January 2026, you spread it over 12 months.
Interest-Free Instalments – It’s automatically handled through PAYE with no setup or interest charges.
No Need for a Payment Plan – Unlike a Time to Pay arrangement, you don’t need to apply for it.

Possible Drawbacks

While this option helps with cash flow, it does mean your take-home pay will be lower during the year the tax is collected. If you prefer more control over your payments, or expect a change in income, you might prefer to pay your Self Assessment bill directly instead.

Key Takeaway

Filing your tax return by 30 December 2025 could make your life easier by allowing HMRC to collect your tax automatically through your tax code.
It’s a convenient, interest-free way to manage smaller tax bills — but make sure it suits your financial situation before choosing this route.

For more information, Book a Free Consultation