How to pay your Self Assessment tax bill

But on that same day you may also owe a payment on account towards next year's tax. Which is why a first tax bill is often 50% bigger than the number people were expecting, and why January is a bad month to find out.

Figures are correct at the date of review. Always check GOV.UK for the latest.

The two payment dates

• 31 January is the balancing payment for the tax year that has just been filed, plus your first payment on account for the year that has just started
• 31 July is your second payment on account

Payments on account, and why your first bill hurts

A payment on account is an advance payment towards next year's tax. Each one is half of the tax you owed last year.

You have to make them unless either:

• the tax you owed last year was less than £1,000, or
• more than 80% of the tax you owed was already collected at source, for example through your PAYE tax code

Here is GOV.UK's own example, and it is the clearest illustration of the problem:

Your bill for a tax year is £3,000, and it is your first time in Self Assessment, so you made no payments on account last year.

The total due on 31 January is £4,500:

• £3,000, your actual tax bill for the year
• £1,500, your first payment on account for the year already underway

You then pay a second £1,500 on 31 July.

So a £3,000 tax bill produces a £4,500 payment. Nobody warns you. The single biggest cause of tax panic among the newly self-employed is not the tax itself, it is the 50% they did not know about.

If your income has genuinely fallen, you can ask HMRC to reduce your payments on account. But if you reduce them too far, HMRC charges interest on the difference. Guessing low is not free.

Source: GOV.UK, Understand your Self Assessment tax bill: payments on account.

The payment reference, and the mistake that delays your money

Your Self Assessment payment reference is 11 characters: your 10-digit UTR followed by the letter K.

Not the UTR on its own. The UTR plus K.

Use the wrong reference and your payment can be delayed, which means it can be late, which means interest and possibly a penalty, on money you have already sent.

You will find the reference in your HMRC online account, or on your paying-in slip if you get paper statements. For HMRC's bank account details, use the official GOV.UK payment page.

How long each payment method takes

Same or next day

• Approve a payment through your online bank account
• Online or telephone banking by Faster Payments
• CHAPS
• Debit card or corporate credit card, online
• At your bank or building society (you need a paying-in slip from HMRC)

Three working days

• Bacs
• Direct Debit, if you have set one up with HMRC before

Five working days

• Direct Debit, if this is your first one with HMRC

You can no longer pay at the Post Office.

If the deadline falls on a weekend or bank holiday

Your payment must reach HMRC on the last working day before it.

The exceptions are Faster Payments and debit or credit card, which go through on weekends and bank holidays.

Note this is the opposite of VAT, where the deadline holds regardless of what day it falls on. Two taxes, two different weekend rules, and there is no logic to it. Just know which one you are dealing with.

You can pay before you have to

You can set up weekly or monthly payments towards your bill before the deadline, or make one-off payments whenever you like.

If you are self-employed and January frightens you, this is the fix. File in April or May, find out your number, then pay it off across the year in instalments. The money leaves either way. This way it leaves gently.

What late payment costs

• 5% of the tax unpaid at 30 days
• 5% again at 6 months
• 5% again at 12 months

Plus interest on the amount owed, running the whole time.

Late filing penalties are separate and they stack. You can be penalised for filing late and for paying late on the same tax bill.

If you cannot pay, contact HMRC before the deadline. Time to Pay is a real arrangement and it is considerably easier to set up while you are still compliant.