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Payment of income tax

Introduction

This briefing provides an overview on how income tax is paid, when it should be paid and the penalties for late payment.

Core considerations  

  • Most people pay income tax through Pay As You Earn (PAYE) - the system an employer or pension provider uses to deduct income tax and national insurance contributions at source, before salary or a pension is paid.

  • The self-employed pay income tax through self-assessment returns.

  • Self-assessment tax returns must be filed and the tax paid by 31 January following the end of the tax year to which the income relates.

  • There are penalties and interest for late filing and payment.

Contents

Pay as you earn (PAYE)

Most people pay their income tax through PAYE - the system an employer or pension provider uses to collect income tax and national insurance contributions for HMRC before salary or pension income is paid. 

An individual’s tax code tells the employer and pension provider how much income tax to deduct. This may include an amount for any tax the individual needs to pay on their savings interest or on dividend income.

If an individual has already paid tax on their savings income, they can reclaim tax paid on their savings interest if it was below their allowance. Tax must be reclaimed within four years from the end of the relevant tax year.

HMRC do not need to be informed if dividends are within the individual’s dividend allowance for the tax year. If it is below £10,000 the individual must inform HMRC who will change the individual’s tax code, or they can complete a self-assessment return. 
 

Self-assessment tax returns

Individuals need to register for self-assessment if their income from savings and investments is over £10,000.  

Returns do not normally need to be completed if an individual’s income is from a salary or pension that is fully taxed under PAYE and they have no other circumstances that require a return. 

The previous rule requiring individuals with employment income over £100,000 (later £150,000) to file a return no longer applies where income is taxed solely through PAYE. This threshold was first increased to £150,000 and then fully removed from April 2024. Individuals earning any amount via PAYE do not need to file a return unless they have other taxable income or reasons that trigger self-assessment.

Individuals must register with HMRC for Self-Assessment by 5 October following the end of the tax year in which the income or gains first arose, otherwise penalties may arise. It must be filed with HMRC by 31 January following the end of the tax year to which the tax relates.

A tax return must also be completed if, in the last tax year, an individual was Self-employed as a sole trader and earned more than the annual £1,000 trading allowance: or a partner in a business partnership.  

A tax return may also need to be completed if an individual has any other untaxed income. Common situations include:

  • Company directors who have income on which tax is due that is not taxed under PAYE.
  • Those with property income – for example, renting a room, a garage, or a whole property to someone else, unless this income qualifies for rent-a-room relief or is within the annual £1,000 property allowance.
  • Individuals who want to claim tax relief on employment expenses over £2,500 in a year.
  • Those who pay the High-Income Child Benefit Charge on their child benefit.
  • Individuals who have untaxed savings income. 
  • Those who have capital gains tax to pay.
     

Making tax digital for income tax

Some individuals who meet self-assessment criteria will also have extra digital reporting obligations, these new obligations came into effect on 6 April 2026.

This applies to individuals whose combined gross income from self‑employment and property exceeds £50,000. This threshold is based on gross income before expenses, not profit.

For example, the additional reporting obligations will apply if a person has £45,000 freelance turnover and £6,000 rental income = £51,000 combined. 

Affected individuals, such as sole traders, landlords and individuals with mixed income e.g. freelance work and rental income must:

  • Keep digital records of income and expenses.
  • Send quarterly updates to HMRC instead of reporting all income annually.
  • Submit a final declaration by 31 January, to confirm all income including savings, investments, and other items not included in the quarterly updates.

If self-employment and property income does not exceed £50,000, there is no change and the self-assessment system should be continued to be used.
 

Payment deadlines

Usually self-assessment payments, which can be made up of tax, national insurance, and student loan repayments, are due by 31 January following the end of the tax year to which they relate. Therefore, tax due for the 2026/2027 tax year should be paid by 31 January 2028.

Some taxpayers must also make payments on account, payable on 31 January and 31 July each tax year.
 

Penalties for late payments

A £100 penalty applies if a tax return is filed up to 3 months late, even if no tax is owed. Penalties increase the later the return or payment is made, and interest is charged on late payments.

 

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