Self Assessment: Plain English Definition
Self Assessment is the UK government's system for collecting income tax from people whose tax is not automatically deducted through PAYE. 'Self assessment' literally means you assess (calculate) your own tax โ rather than having an employer do it for you.
Each year, you complete a return declaring all your income and deductions. HMRC reviews it, calculates the tax owed and you pay the balance by the January deadline. The system is used by self-employed people, company directors, property landlords and higher earners.
Self Assessment vs PAYE
| Feature | PAYE | Self Assessment |
|---|---|---|
| Who uses it | Employees | Self-employed, directors, landlords |
| Tax deducted | Automatically by employer | Calculated and paid by you |
| Annual filing | Not usually required | Required annually by 31 Jan |
| Expenses | Limited via P87 | Full business expenses deductible |
Does Self Assessment Mean I Pay More Tax?
No โ Self Assessment is a collection method, not a different set of tax rates. The same income tax rates (20%, 40%, 45%) and personal allowance (ยฃ12,570) apply to everyone. The difference is that employed people have tax collected automatically; self-employed people manage this themselves. If anything, Self Assessment gives you more opportunity to claim deductions and reliefs not available to most employees.