PAYE vs Self-Assessment
Most employed people pay tax through PAYE automatically, while self-employed people and those with additional income must file a Self-Assessment tax return. This comparison explains both systems.
| Feature | PAYE | Self-Assessment |
|---|---|---|
| Who uses it | Employees — tax deducted automatically by employer | Self-employed; directors; those with untaxed income over £1,000; high earners (over £100,000) |
| When you pay | Each payday — tax deducted before you receive pay | 31 January (balance due) and 31 July (payment on account) |
| Filing requirement | No return needed for most employees | Annual tax return (5 April year end; 31 January online deadline) |
| Manages multiple income sources | Only for employment income — employer notified by HMRC | Yes — rental income, dividends, capital gains, foreign income |
| Penalties for late filing | N/A for employees (employer penalties apply) | £100 initial penalty; further daily penalties after 3 months |
| National Insurance | Class 1 — deducted by employer | Class 2 (flat rate) and Class 4 (profit-based) for self-employed |
You may need to do both — for example if you are employed but also have self-employment income. Register for Self-Assessment by 5 October after the relevant tax year.
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