If you are both employed (either by your own Limited Company or somewhere else) and file a tax return, then you can choose to pay your self-assessment tax due through PAYE instead of making the lump sum payments in January & July.
There is a selection that can be made when filing the tax return (whether you do it yourself or your accountant does), so let’s get clued up on how to choose which option is right for you.
Remembering to do it!
If you opt to have the tax deducted from your wages, then you don’t need to be the one who remembers to make the payments! That’s one thing off your mind, right?
PAYE 1 – Lump Sum 0
Making the most of your money
As soon as you opt to pay through PAYE, the deductions will begin to be taken, even if the tax isn’t due for some months.
If, instead, you had the tax money in a savings account, set aside until it was due, you could be earning interest or getting other benefits out of it.
PAYE 1 – Lump Sum 1
Quick ticking
Of course, with PAYE, the tax could be collected over a 12 month period, whereas when you pay your lump sum, you know you’re one and done! So, if you’re someone who loves a quick tick, this might be better for you!
PAYE 1 – Lump Sum 2
It feels nicer not seeing your bank balance go down!
If making the lump sum payment would put a big ol’ dent in your bank account, then choosing to pay over the year through PAYE could help your cash flow. The money will go straight to HMRC and never even hit your account – can’t miss what you never had, right?
PAYE 2 – Lump Sum 2
How much of your wages do you need for your monthly bills though?
If the wages you have coming in are essential for your cost of living each month, then having less of it come in it month could have stressful impact.
If you’re on a fairly low salary too, then the proportion of what will be deducted is likely to be higher, and you’ll feel the difference more.
PAYE 2 – Lump Sum 3
Do you like waiting for 90 minutes to talk to HMRC…?
No? You surprise me! Well, if it’s not your thing, then you should know that paying through PAYE could be easier when it comes to adjustments. If something happens that changes the amount of tax you owe, or changes your tax-free allowance, then this will be automatically accounted for through payroll. If you’re lump-summing it though, it could be lengthy wait & chat with someone to get the adjustments sorted.
PAYE 3 – Lump Sum 3
Are HMRC understanding about underpayments…?
Not really! Even if you underpay through completely innocent means, they’re not likely to want to hear about it, and you could be slapped with fines. Paying through PAYE means that they are in control of actually getting the tax, and so you’re not running this risk.
PAYE 4 – Lump Sum 3
Done well this year, and owe quite a lot…?
How much are you actually getting through PAYE? Will it cover it?
Directors with low salaries may not actually be earning enough to cover the tax bill, or if you work ad hoc to supplement your self-employed income, you could be in the same boat. If you choose to pay through PAYE, you’ll need to be certain that your employment income will actually cover the bill!
PAYE 4 – Lump Sum 4
Employed & STAYING employed?
Looking at you, side hustlers! Is this the year to make the *leap*?
If there’s a chance you might be leaving your employment to work for yourself full-time, then you may not make full payments before leaving. Then, it will be your responsibility to make up the difference. This could just be an unnecessary hassle on your already pretty full plate!
PAYE 4 – Lump Sum 5
Although we have finished up with a slight winner, take the time to think about it make the best choice for you! Not all of these considerations will apply to every situation, so be sure to talk it over with your accountant and make the choice that will make your business a joy for you, and not a stressor.
Need your tax return doing?
Or if you’re new to the whole self-employment world and are looking for support as you grow, why not check out Pink Pig in My Pocket?
