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How to Spread Your Self-Assessment Tax Bill via Your Tax Code

If you’re a UK taxpayer with a self-assessment bill for the year ended 5 April 2025, you might dread the lump-sum hit coming in January 2027. But there’s a smart (and legitimate) route to spread that liability over 12 months, using your tax code for the 2026-27 year. Here’s how it works – and what you must do by 30 December to make it happen.

What is this scheme?

The HM Revenue and Customs (HMRC) allows certain individuals who pay tax by PAYE (or via a pension) to have their self-assessment liability collected through their tax code rather than as one big payment. According to HMRC:

“You can pay your Self Assessment bill through your PAYE tax code … the tax you owe will be taken from your salary or pension in equal instalments over 12 months, along with your usual tax deductions.”

In plain English: rather than making a direct payment for the full amount, if you’re eligible, HMRC will adjust your tax code so that your tax is deducted at source. This smoothes the cost and helps cash-flow.

Why this matters for 2024-25 tax bills

For the tax year 2024-25 (that’s 6 April 2024 to 5 April 2025), the standard self-assessment payment-in-January penalty date comes up in January 2027. If your tax return is filed and processed in time, and you meet eligibility criteria, you can ask HMRC to collect the bill via your PAYE tax code in the 2026-27 year instead. That means you avoid a large lump sum and instead spread the cost across 12-installments.

For many business owners, freelancers, portfolio earners or side-hustlers who are being absorbed into PAYE for part of their income, this can make budgeting far easier.

Am I eligible?

You’ll need to satisfy several conditions. As per HMRC:

  • You owe less than £3,000 on your self-assessment bill.
  • You already pay tax through PAYE, for example as an employee or via a company pension.
  • You submitted your online self-assessment return on time (for this scheme it means by 30 December).

You’ll not be able to use this scheme if:

  • You don’t have enough PAYE income for HMRC to collect the amount through your code.
  • You’d end up paying more than 50% of your PAYE income in tax due to the adjustment.
  • You owe £3,000 or more and attempted to reduce the amount by part payment (because you can’t meet the threshold by part payment).

Key dates: File by 30 December

To be eligible for your 2024-25 self-assessment bill to be coded into your 2026-27 tax code, you must file your return by 30 December (online). Failure to meet this date will usually mean HMRC cannot use the PAYE tax-code route and you’ll face the standard payment deadlines.

In other words, if you miss the 30 December filing deadline you’ll lose the spread-over-12-months benefit and will need to pay in full in January.

Step-by-step: How to set it up

  1. Complete your self-assessment return for 2024-25 ahead of 30 December. Make sure all income, allowances, deductions (e.g. expenses, pension contributions), and any side business profits are accurately declared.
  2. Check your liability — ensure the amount you owe is under £3,000 (or at least that HMRC will accept the coding route).
  3. Make sure you pay tax through PAYE or a pension (so HMRC can adjust your code). If you’re purely self-employed with no PAYE income, this route won’t apply.
  4. On your return tick the box or otherwise indicate you wish to pay via your tax code. You can contact HMRC after filing to ask that your liability be collected through your PAYE code.
  5. HMRC will adjust your tax code for the 2026-27 tax year, and your employer or pension provider will deduct the extra tax in equal instalments over the year.
  6. Check your payslips once the tax code is in place to ensure the extra amount is being deducted.
  7. Keep a budget plan — although the payment is spread, you’re still paying the full liability; make sure you anticipate it and plan accordingly.

Pros & cons: Is this route right for you?

Pros:

  • Smooths cash flow: no large lump sum payment in January; instead, moderate amounts each month.
  • Greater budgeting certainty: you know what to expect across the year.
  • Useful for those with mixed income (PAYE + self-assessment), side-hustles, or transitioning into PAYE.

Cons:

  • If you change job/employer mid-year, check that the new employer picks up the tax-code adjustment.
  • If you stop having enough PAYE income (for example you become fully self-employed), HMRC may stop the coding route and you’ll face the remainder as a standard payment.
  • Because the liability is spread, you’re still paying the same amount — you are simply shifting when you pay. There’s no interest-free “loan”: if you leave PAYE income, you may be required to pay the remainder upfront.
  • Must act before the filing deadline of 30 December — otherwise you lose eligibility for that tax year.

Final thoughts

This coding-out route is a fantastic tool to avoid a big tax pain in January. File your return on time, check your eligibility, and make the ask to pay via your tax code. It’s a perfectly legitimate option and can make a real difference to your cash-flow.

As always, if anything changes (you shift to self-employment only, your PAYE role ends, your tax code gets messed up) give us a shout and we can review your scenario.