Self-Assessment Explained
Self-assessment is the system through which individuals report their income to HMRC and calculate their own tax liability. It applies to anyone whose tax affairs are not fully settled through PAYE alone. The system was introduced in 1996 and is governed by the Taxes Management Act 1970 as amended.
Under self-assessment, taxpayers are responsible for telling HMRC about their income and gains, filing an accurate return, and paying any tax owed by the relevant deadlines.
Who Needs to File a Self-Assessment Return?
You must register for self-assessment and file a tax return if you:
- Are self-employed as a sole trader with income above £1,000
- Are a partner in a business partnership
- Have untaxed income exceeding £2,500 (such as rental income, tips, or commission)
- Receive income from savings, investments, or dividends above certain thresholds
- Need to pay Capital Gains Tax on the disposal of assets
- Are a company director (unless for a non-profit with no pay or benefits)
- Have foreign income that is taxable in the UK
- Are a trustee or executor of an estate
- Need to pay the High Income Child Benefit Charge and do not pay it through your tax code
If you are employed and have no other income, your employer handles your tax through PAYE and you generally do not need to file a self-assessment return.
Registering for Self-Assessment
You must register by 5 October following the end of the tax year in which you first need to file. For example, if you become self-employed in August, you normally register by 5 October after that tax year ends.
Registration can be done online through the HMRC website. You will receive a Unique Taxpayer Reference (UTR) — a 10-digit number used for all self-assessment dealings.
To file online, you also need a Government Gateway user ID.
The Tax Year
The UK tax year runs from 6 April to 5 April. All income and expenses reported on a self-assessment return relate to this period.
Key Deadlines
| Deadline | Date |
|---|---|
| Register for self-assessment | 5 October after the tax year |
| Paper return filing | 31 October following the tax year |
| Online return filing | 31 January following the tax year |
| Payment of balancing tax owed | 31 January following the tax year |
| First payment on account | 31 January following the tax year |
| Second payment on account | 31 July following the tax year |
For any tax year:
- Online filing deadline: 31 January after the tax year ends
- Paper filing deadline: 31 October after the tax year ends
What to Include on Your Return
Your self-assessment return must declare all sources of income, including:
Employment Income
- Salary, wages, bonuses, and benefits in kind
- Information from your P60 and P11D
Self-Employment Income
- Turnover and allowable expenses
- Capital allowances claimed
- Details of the basis period
Other Income
- Rental income from property
- Dividends and interest
- Pension income
- Foreign income
- Gains from selling assets subject to Capital Gains Tax
Payments on Account
If your tax bill is more than £1,000 and less than 80% of your tax was collected at source, you must make payments on account. These are advance payments towards next year’s tax bill, based on the previous year’s liability.
Each payment on account is 50% of the previous year’s tax bill:
- First payment: 31 January (during the tax year)
- Second payment: 31 July (after the tax year ends)
- Balancing payment: 31 January (following the tax year)
You can apply to reduce payments on account if you expect your income to decrease.
Income Tax Rates
Self-assessment uses the standard income tax rates and bands for the tax year being reported. Income up to the personal allowance is tax-free, then the basic rate of 20%, the higher rate of 40% and the additional rate of 45% apply in bands, with Scotland using its own rates and bands for non-savings income. For high earners, the personal allowance is reduced by £1 for every £2 of income above the taper threshold.
The bands and thresholds are set by the government for each tax year and published on GOV.UK. Your software or HMRC’s online return applies the right figures for the year you are filing.
National Insurance for the Self-Employed
Self-employed individuals also pay National Insurance contributions through self-assessment:
- Class 4 NICs: a main rate on profits between the Lower and Upper Profits Limits, plus a lower rate on profits above the Upper Profits Limit
- Class 2 NICs: since 6 April 2024 no longer compulsory; if profits are below the Small Profits Threshold you can choose to pay voluntary Class 2 through the return to protect your State Pension record
Penalties for Late Filing and Payment
HMRC imposes automatic penalties for late returns:
| How Late | Penalty |
|---|---|
| 1 day late | £100 fixed penalty |
| 3 months late | £10 per day (up to 90 days, maximum £900) |
| 6 months late | 5% of tax due or £300 (whichever is greater) |
| 12 months late | Further 5% of tax due or £300 (whichever is greater) |
HMRC also charges late payment interest at a rate linked to the Bank of England base rate, and additional late payment penalties of 5% of the unpaid tax at 30 days, 6 months and 12 months.
Making Tax Digital and Self-Assessment
Since 6 April 2026, self-employed individuals and landlords with qualifying income above £50,000 have had to comply with Making Tax Digital for Income Tax. This requires digital record keeping and quarterly updates to HMRC, with an annual tax return still filed through compatible software.
The threshold falls to £30,000 from 6 April 2027 and to £20,000 from 6 April 2028.
Record Keeping
You must keep records for at least 5 years after the 31 January filing deadline. Required records include:
- Invoices and receipts for income and expenses
- Bank statements
- P60s and P11Ds from employers
- Dividend vouchers
- Records of any assets bought or sold
Maintaining proper accounting records throughout the year makes the self-assessment process significantly easier and reduces the risk of errors.
Common Mistakes to Avoid
- Missing the deadline — set reminders well in advance
- Forgetting income sources — HMRC receives data from employers, banks, and other sources and will query discrepancies
- Not claiming all allowable expenses — review the full list of tax-deductible expenses
- Mixing personal and business finances — use separate bank accounts
- Ignoring payments on account — budget for these advance payments
- Not registering on time — the 5 October deadline is often overlooked by new businesses
How to File
Self-assessment returns can be filed:
- Online through HMRC’s website or compatible software
- On paper using an SA100 form (earlier deadline applies)
Most taxpayers now file online, which also provides an immediate calculation of tax owed. Commercial accounting software can submit returns directly to HMRC and help track income and expenses throughout the year.
If you are filing for the first time, follow our self-assessment step-by-step guide, and avoid a January shock by setting aside money for tax throughout the year.