How do you pay Income Tax?

18 Jan 2010 Tell a Friend

The way in which income tax is collected depends on your current employment status.   If you are employed or you receive a pension from a company or private scheme, you will usually be part of a PAYE scheme (Pay As You Earn), where the income tax is deducted from your pay before it reaches your bank account each month.  

When you are taxed on the interest you have earned from savings in a bank or building society account, the tax is deducted from the interest before it is paid out to you.  This means that the gross interest you have earned will show up on your bank statement, but you will only receive the interest net of income tax.

If you are self-employed , the Director of a limited company or receive income through several sources, you have to complete a self-assessment tax return once a year.  There are various other reasons why you may need to complete a self-assessment tax return, and you can find a list of these on the HMRC website.  A self-assessment tax return is a form on which you declare your total earnings for the previous tax year (April 6th to April 5th) and then make the income tax payment directly to HM Revenue & Customs (HMRC).   

If you are eligible to complete a self-assessment tax return, HMRC will usually send you one through the post in plenty of time for the deadline, and give you details about how you could register to file it online instead.  However, if you haven?t been sent a tax return form and feel that you need one, you should call HMRC?s Self Assessment helpline on 0845 900 0444 between 8am and 8pm on any day and request one.  

If you?re completing the paper version of the form, you have until 31st October each year to submit your return for the previous tax year, along with the income that you owe.  If you choose to complete the form online, you have until 31st January each year, and the site will actually do your tax calculations for you, based on the information that you have given.  If you do not submit your self-assessment tax form on time, you are liable for a fine.