Tax

PAYE vs Self Assessment UK — What's the Difference?

Understanding the difference between PAYE and Self Assessment tax in the UK. How each works, who needs which, and what you need to do.

· 4 min read

PAYE and Self Assessment are two ways tax is collected in the UK. Here’s how they work and which you need.

PAYE Explained

What Is PAYE?

Feature Details
Stands for Pay As You Earn
How it works Tax deducted from wages automatically
Who does it Your employer
When Every payday
You do Nothing (usually)

How PAYE Works

Step What Happens
1 HMRC sends tax code to employer
2 Employer calculates tax on each pay
3 Tax deducted before you get paid
4 Employer sends tax to HMRC
5 By year end, correct tax collected

What’s Collected Through PAYE

Deduction Details
Income Tax Based on your tax code
National Insurance Employee contributions
Student Loan If applicable
Pension contributions Often salary sacrifice

PAYE Advantages

Benefit Details
Automatic No work from you
Spread out No large bills
Accurate Usually correct by year-end
No deadlines (for you)

Self Assessment Explained

What Is Self Assessment?

Feature Details
How it works You file a tax return
When Annually (for previous tax year)
Calculate Your own tax liability
Pay Direct to HMRC
Deadline 31 January (online)

Self Assessment Process

Step Action
1 Register for Self Assessment
2 Keep records during tax year
3 File return after 6 April
4 HMRC calculates tax owed
5 Pay by 31 January
6 Possibly payments on account

Who Needs Self Assessment

Situation Required?
Self-employed Yes
Partner in partnership Yes
Rental income Yes
Foreign income Yes
Untaxed savings/investments Over allowances
Capital gains Over £3,000 or need to report loss
Income over £150,000 Yes
Income £100,000+ Usually yes (to check)
Child Benefit + £60k+ income Yes (for HICBC)
Director (not through PAYE) Yes
Religious minister Usually yes
Claiming tax reliefs Yes

PAYE vs Self Assessment Comparison

Feature PAYE Self Assessment
Tax calculated by Employer You/HMRC
Payment timing Every payday Once/twice yearly
Paperwork Minimal Annual return
Deadlines None for you 31 January
Suits Simple employment Complex income
Record keeping Employer does You must

Both PAYE and Self Assessment

Common Combinations

Situation What You Do
Employed + self-employed PAYE on salary, Self Assessment for side income
Employed + rental income PAYE on salary, Self Assessment for rent
Employed + investments PAYE + Self Assessment if above allowances
Employed + Child Benefit charge Self Assessment to report

How It Works Together

Income Type How Taxed
Employment Through PAYE at source
Also included In Self Assessment return
Other income Only in Self Assessment
Total tax Calculated on all income
Credit for PAYE already paid
You pay The difference

Example

Income Amount Tax Collection
Salary £50,000 PAYE
Rental profit £10,000 Self Assessment
Total £60,000 —
Tax on £60,000 £11,432 —
PAYE already paid £7,486 —
Self Assessment due £3,946 —

Self Assessment Key Dates

Annual Deadlines

Date What
5 April Tax year ends
6 April New tax year, can file return
5 October Register for Self Assessment (first time)
31 October Paper return deadline
30 December File online to have tax collected via PAYE
31 January Online return deadline + payment
31 July Second payment on account (if applicable)

Penalties for Late Filing

How Late Penalty
1 day late £100
3 months late £10/day up to 90 days (max £900)
6 months late 5% of tax due or £300 (higher)
12 months late Further 5% or £300

Penalties for Late Payment

How Late Penalty
30 days late 5% of tax due
6 months late Further 5%
12 months late Further 5%
Plus Interest on amount owed

Payments on Account

What Are They?

Feature Details
Advance payments Towards next year’s bill
Amount Half your previous year’s bill
When 31 January and 31 July
First year None (but larger first bill)

Example

Tax Year Tax Due Due Date
2023-24 £5,000 31 Jan 2025
Payment on account 1 (2024-25) £2,500 31 Jan 2025
Total 31 Jan 2025 £7,500 —
Payment on account 2 (2024-25) £2,500 31 Jul 2025
Balancing payment (2024-25) Varies 31 Jan 2026

Getting Started with Self Assessment

Registration

When to Register Details
By 5 October After end of tax year you need it
Online gov.uk
Wait for UTR (Unique Taxpayer Reference)
Then Set up Government Gateway

Records to Keep

Record How Long
Income records 5 years
Expenses/receipts 5 years
Bank statements 5 years
Invoices 5 years

Filing Options

Option Details
HMRC online Free
Commercial software Various providers
Accountant They can submit

Summary: PAYE vs Self Assessment

Quick Reference

You’re… Tax Collection
Standard employee PAYE only
Employee earning £100k+ Probably need Self Assessment
Self-employed Self Assessment
Landlord Self Assessment
Employee + rental PAYE + Self Assessment
Employee + side hustle PAYE + Self Assessment
Receiving Child Benefit, partner earns £60k+ Self Assessment

Key Actions

If PAYE Only If Self Assessment
Check tax code correct Register by 5 October
Review annual summary Keep all records
Claim work expenses if eligible File by 31 January
— Pay by 31 January
— Budget for payments on account

Understanding which system applies to you — or both — helps you meet your tax obligations and avoid penalties.