If you have a job or a pension and also earn something on the side, whether that is weekend self-employment, rent from a flat, or freelance work in the evenings, your Self Assessment bill for 2025/26 is due by 31 January 2027. For many people that means finding a lump sum straight after Christmas.
It does not have to. If the bill is under £3,000 and you file early enough, HMRC can collect it through your PAYE tax code, spread across your pay from April 2027. The dates that decide this are 31 October 2026 for paper returns and 30 December 2026 for online returns. Here is how it works, who qualifies, and what it does not cover.
In a nutshell
- Coding out spreads the bill over a year. Collected through your wages or pension from April 2027.
- Three conditions must all be met. Under £3,000, already on PAYE, filed in time.
- The early dates are for coding out only. Filing on 31 January is still on time.
- HMRC can say no. Low PAYE income or a sharp jump in tax rules it out.
- It covers the balancing payment only. Payments on account are still paid in cash.
- It is automatic, unless you tick the box. Check the return before you submit.
1. What coding out actually means
Coding out means HMRC collects a small Self Assessment bill through PAYE instead of asking you to pay it directly. HMRC adjusts your tax code for the following tax year, so your employer or pension provider deducts a little extra tax each payday.
For a 2025/26 return, that means your 2027/28 tax code, which runs from 6 April 2027 to 5 April 2028. If you are paid monthly, the amount is spread across twelve paydays. Nothing is due in January for the part that is coded out, and you do not have to make any separate arrangement.
It only works for people who already have PAYE income. If all of your income comes from self-employment, with no job and no pension, coding out is not available to you and the bill is paid in the normal way.
2. The three conditions
Gov.uk sets out three conditions, and you need all of them.
You owe less than £3,000. HMRC's own limit is £2,999.99 for the year. A bill of £3,000 or more is not coded out at all, not even the first £2,999.99 of it. Any voluntary Class 2 National Insurance you pay is left out of this test, and cannot be coded out either.
You already pay tax through PAYE. That usually means you are an employee, or you receive a company or private pension.
You file your return on time for coding out. That is by 31 October 2026 on paper, or by 30 December 2026 online.
One trap to avoid: you cannot pay part of a larger bill before filing to bring it under £3,000. HMRC's guidance is clear that a balance reduced that way will not be coded out.
3. Why 31 October and 30 December matter
These two dates are the deadlines for coding out, not the deadlines for filing.
The paper return deadline for 2025/26 is 31 October 2026 in any case, so if you file on paper, that date matters for everything. For online returns, the normal deadline is still 31 January 2027. Filing online on 15 January is not late, and there is no penalty for missing 30 December. You simply lose the option of having the bill collected through your tax code, and pay it by 31 January instead.
The real choice is between paying in one go or spreading it, and spreading it only costs filing a few weeks earlier.
4. When HMRC will not code it
Even if you meet all three conditions, HMRC can decline. Gov.uk lists the cases where coding out is not available:
- You do not have enough PAYE income for the extra tax to be collected.
- You would pay more than 50% of your PAYE income in tax.
- You would pay more than twice your normal tax through PAYE.
If HMRC does not code the amount, it is due by 31 January 2027 as normal. HMRC decides how and whether to collect it, so if your circumstances change, for example you change jobs or retire, it may move to your new code or come back to you as a bill. The safe habit is to check your Self Assessment calculation and your 2027/28 tax code once you receive them, rather than assuming the bill has been dealt with.
5. What coding out does not cover
This is where most confusion arises. Coding out collects only the balancing payment for 2025/26. It does not touch payments on account for 2026/27.
Payments on account apply if your Self Assessment bill is £1,000 or more and less than 80% of your tax was already collected at source, for example through your wages. If they apply to you, the first one is still due in cash on 31 January 2027 and the second on 31 July 2027, even if your balancing payment is coded out. We explained how payments on account work, and when you can legally reduce them, in an earlier article.
A separate box on the return lets HMRC collect tax on some 2026/27 income, such as savings or property income, through your current tax code. It is a different mechanism with its own opt-out, so do not confuse the two.
6. How to make sure it happens
Coding out is automatic if you meet the conditions. You do not have to ask for it. What you do have to do is avoid switching it off by accident.
On the 2025/26 tax return there is a box under "If you have not paid enough tax". Putting an X in that box tells HMRC you do not want the bill collected through your tax code, and that you will pay by 31 January 2027 instead. Leave it empty if you want coding out. Online software asks the same question in its own words, so read it rather than clicking through.
A short checklist:
- Gather your records now. Payslips or P60, rent statements, invoices and expenses for 6 April 2025 to 5 April 2026.
- Aim to file online by mid December, to leave room for anything that goes wrong.
- Check the calculation to see whether the bill is under £3,000 and whether payments on account apply.
- Leave the coding out box unticked, unless you prefer to pay in January.
- Check your 2027/28 tax code when HMRC sends it next spring.
A worked example: Anna, a healthcare assistant
Anna works for an NHS trust on a salary of £26,000 a year, taxed through PAYE. At weekends she runs a small self-employed cleaning business, which made a profit of £4,000 in 2025/26. Her salary already uses her personal allowance, so the cleaning profit is taxed at 20%, and her Self Assessment bill is £800.
The bill is under £3,000, she is on PAYE, and her salary is easily high enough to carry the extra tax. Because the bill is under £1,000, no payments on account apply. If she files online by 30 December 2026 and leaves the coding out box empty, HMRC adjusts her 2027/28 tax code and collects the £800 across her monthly pay, roughly £67 a month from April 2027.
If she files on 20 January instead, she is not late, but she needs £800 in her account by 31 January 2027. Same tax, very different month.
Things to watch out for
- 30 December is not a penalty deadline. Online returns are due by 31 January 2027; the earlier date only decides coding out.
- £3,000 is a hard limit. A bill of £3,000 or more is not coded out at all, and part payments do not help.
- Payments on account are separate. They are still due in cash on 31 January and 31 July.
- Only for people with PAYE income. Purely self-employed people pay in the normal way.
- The box works in reverse. An X means you do not want coding out.
- HMRC decides. Check your calculation and your next tax code instead of assuming it is sorted.
How Ollen Services Can Help
If you have a job or a pension and a second income, we can prepare and file your 2025/26 return well before 30 December, check whether your bill qualifies for coding out, and make sure the right boxes are completed. We also tell you in advance whether payments on account apply, so January brings no surprises.
If you have not yet registered for Self Assessment for new income in 2025/26, the deadline for that is 5 October 2026, and we can help with that too. We work in English and Polish.
Call us on 07513 491 259 or email hello@ollenservices.co.uk. File early, and next year's bill can come out of your payslip a little at a time.