So, you’ve done the hard part. You’ve wrangled the receipts, filed your Self-Assessment (or your accountant has ;), and you’re looking at the final number. Phew. Now comes the big question: do you pay your personal tax bill right away, or do you hold onto your cash until that 31st January deadline is breathing down your neck?
As a busy business owner, we know you’re juggling a million things. This decision isn’t just about money; it’s about your cash flow, your peace of mind, and your plans for the future.
We want to help you make the accounting part of your life as simple as possible, so you can spend more time doing the things you love.
Let’s break down the pros and cons of paying now vs. waiting, so you can make the right call for you.
What’s This All About Anyway?
Your personal tax bill is just your slice of the pie that you owe HMRC for the money you’ve earned. Every year, you’ve got to file your tax return to show what you’ve made. And if you’ve earned money, HMRC wants its cut. It’s your job to get it to them on time—think of it as a deadline you really don’t want to miss.
The All-Important Dates
That 31st January deadline isn’t just a friendly suggestion; it’s a hard stop. Missing it is like hitting a massive pothole. As a result, you can suddenly find yourself stuck with late fees and penalties that turn tax season into a total nightmare.
The Upside of Getting it Done Early
- Dodge Those Nasty Interest and Penalties Paying your personal tax bill the moment you file is the simplest way to make sure you never get a late payment penalty. It’s done. Finished. You won’t have to worry about interest piling up (which it does, faster than you’d think!).
- Ah, Financial Peace of Mind Let’s be honest, having that tax bill hanging over your head is stressful. It’s like a little dark cloud following you around. Paying it off early clears that mental clutter. You can wake up knowing it’s sorted, freeing you up to focus on the big picture—like growing your business or taking that holiday you’ve been dreaming of.
What About Waiting Until the Deadline?
This is where financial discipline really matters. Let’s be clear: there’s a smart way to wait, and a very risky way.
The Smart Way:
The Cash Flow Pro-Move This is a great strategy if you’re super-organised. It works like this:
- You file your personal tax return way early (go you!)—maybe in April or May, right after the tax year ends.
- You find out the exact amount you owe.
- Instead of paying it, you move that exact amount into a separate, high-interest savings account.
- You let it sit there and earn interest for the next 8-9 months.
- In January, you simply pay the bill from that account and—boom—you get to keep the interest you earned.
It’s a brilliant way to make your money work for you, but it relies on you not falling into the trap of…
The Risky Way:
The ‘Wing-It’ Approach…The danger of waiting is treating that tax money as your money. If you don’t have the discipline to move it into a separate account, you risk absorbing it back into your business or personal spending.
When 31st January hits, you might not have the full amount ready. That’s when those penalties and interest charges start piling up, turning a manageable bill into a mountain.
What Happens if You Are Late?
- The Legal Bit HMRC doesn’t mess around. They see late payments as a serious issue, and they’ll start by adding interest and penalties. In very rare, serious cases, it can get a lot worse. Honestly, it’s a risky game to play and not one we’d ever recommend.
- They Will Get in Touch Ignoring those letters from HMRC won’t make them go away. They can (and will) take action to get what they’re owed, like taking it directly from your wages (if you have them) or putting a lien on your assets. It’s way more stress than it’s worth.
How to Make It All Less Stressful
- Set Up a Payment Plan If that final tax bill looks terrifyingly big, don’t panic. HMRC often lets you set up a ‘Time to Pay’ plan, which breaks the total amount into smaller, monthly chunks
- Use the Right Tools Good accounting software (like Xero!) can be a lifesaver. It helps you see exactly what you’re earning and what you’ll likely owe, so you can set money aside as you go. No more nasty surprises!
Need a Hand?
This is what we do! A good accountant (like us!) can be your guide through the tax maze, giving you advice that’s tailored to you and your goals.
If you’re ready to take some of the stress out of running your business, then get in touch with us to have a chat!
Your Questions Answered
- What happens if I pay my taxes late? You’ll start getting charged interest and penalties, and it can escalate from there. It’s best to avoid it!
- Are there any perks to paying early? Yes! You avoid any risk of penalties, and you get amazing peace of mind. It’s one major thing ticked off your list.
- How can I manage my cash flow for taxes? The best way is to set money aside as you earn it. A good rule of thumb is to put 20-30% of every invoice you’re paid into a separate savings account. That way, the money is ready and waiting for you.
Blog Suggestion: How much should I put aside for my tax bill?
- Can I change my mind about when to pay? Absolutely, you can file your return early (as soon as the tax year ends in April!) to find out what you owe, and then pay it any time before the 31st January deadline. It gives you plenty of time to plan.
