Should I pay tax bill in a lump sum or over the year via tax code?

Stitchylinda

I have a tax bill for around £2,000 (for a second income, not self-employed).

The letter says it will be recovered through the 2016-17 tax year using a new tax code. I reckon this will be around £167 per month, which will be quite difficult to manage as we are already on a tight budget.

I can raise the money from our savings and so pay the bill in one lump sum now.

My question is, would paying it off in a lump now make any difference to me or should I just let them take the money per month and use my savings to supplement our income?

booksurr

use your savings as needed on a month by month basis then you will continue to (I assume) earn interest on the portion not yet used.

why not continue to earn a few pennies in interest on that £167 per month if that is how much you need to withdraw from savings in order to maintain your budget. If you pay the lump sum then you lose that future interest.

Nicola_Ed

Hi - I think this is a matter of personal choice. However paying the tax off each month is like getting an interest free loan from HMRC and this would be my choice rather than use savings. You do not say which tax year the tax relates to but assuming it is 2014/2015 you may want to check that you have not underpaid tax for the current tax year. HMRC may let you pay the tax over 3 years rather than 1 although if you do ask for this you may be asked about your savings.

Stitchylinda

Hi Nicola, the tax for this year was changed so that I am now paying the correct amount of tax - the bill relates, as you say, to 2014-15.

satish_shah

better to pay monthly if possible - assume your main income is PAYE.