Self-Assessment for Employees: What You Need to Know for Tax Filing

 

In the UK, most employees have their taxes automatically deducted from their wages through the Pay As You Earn (PAYE) system. However, there are situations where you may need to complete a Self-Assessment tax return, even if you are employed. This process can seem daunting, but understanding when and why it's necessary can help ensure you're meeting your tax obligations. Here’s everything you need to know about Self-Assessment for employees.

When Do Employees Need to Complete a Self-Assessment?

While most employees pay tax through PAYE, there are certain circumstances where you’ll need to file a Self-Assessment tax return. These include:

1. Additional Income: If you have income outside your employment, such as from freelancing, rental income, or investments, you'll need to declare it through Self-Assessment. This applies if your income from these sources exceeds £1,000 in a tax year.
2. High Earnings: If you earn over £100,000 annually, you’ll generally be required to file a Self-Assessment tax return, even if your income is fully taxed through PAYE.
3. Claiming Certain Tax Reliefs: Some tax reliefs, like those for charitable donations or professional subscriptions, can only be claimed through Self-Assessment. If you qualify for these, you’ll need to complete the tax return to adjust your tax liability.
4. Receiving Benefits in Kind: If your employer provides you with benefits, such as a company car or health insurance, and the value of these benefits exceeds £2,500 per year, you may need to submit a Self-Assessment return to report these benefits.
5. Self-Employed or Mixed Employment: If you're both employed and self-employed, you’ll need to file a Self-Assessment to declare all your income. Even part-time self-employed income requires a tax return.

How to Complete Your Self-Assessment

1. Register with HMRC: If you’ve never filed a Self-Assessment before, the first step is to register with HMRC. You’ll receive a Unique Taxpayer Reference (UTR) number, which you’ll need to complete your return.
2. Gather Your Documents: Collect all necessary documents before starting your tax return. This may include:
• Your P60 or P45 (documents detailing your employment income)
• Records of additional income (e.g., freelance invoices, rental income)
• Records of allowable expenses, such as business costs or charitable donations
• Information about any benefits in kind received
3. Complete Your Tax Return: You can file your Self-Assessment online via HMRC's website or on paper. The online process is quicker and offers additional tools to help guide you through the form. You’ll need to report all income, and you’ll be able to claim any relevant tax reliefs and allowances. Be sure to enter your income accurately to avoid penalties.
4. Submit on Time: The deadline for online submissions is 31 January following the end of the tax year (which ends on 5 April). For paper submissions, the deadline is 31 October. Failing to submit on time can result in late filing penalties.

Common Mistakes to Avoid

• Incorrectly Reporting Income: Always report your income accurately. If you're unsure about how to report freelance or rental income, consult with a tax professional to ensure you're claiming correctly.
• Missing Deductions: You may be entitled to deductions for business expenses, charitable donations, or pension contributions. Ensure you claim all eligible expenses to reduce your tax liability.
• Late Submission: Missing the deadline will lead to automatic penalties, so make sure you submit your return well in advance.

What Happens After Submission?

Once your return is submitted, HMRC will calculate how much tax you owe based on the income and expenses reported. If you owe any tax, you will be required to pay by the 31 January deadline. If you’re due a refund, HMRC will issue it after processing your return.

Filing a Self-Assessment tax return as an employee can seem like a complex task, but understanding when and how to do it can make the process much easier. Whether it’s due to additional income, benefits, or other factors, ensuring that you file on time and correctly is essential to avoid penalties and ensure you're paying the right amount of tax. If you're unsure about any part of the process, it’s a good idea to seek guidance from a tax professional to ensure you meet your tax obligations.