What is Self Assessment?

Most employees in the UK have Income Tax deducted automatically through PAYE and never need to engage directly with HMRC. For self-employed individuals, company directors, and others with income outside PAYE, the situation is different — Self Assessment is the mechanism through which they report their income and calculate the tax owed. Understanding what it is and who it applies to is foundational knowledge for any UK founder.

Self Assessment is the system used by HMRC to collect Income Tax and National Insurance from individuals whose tax cannot be fully collected through PAYE. It requires taxpayers to complete a tax return each year, declaring all sources of income and allowable deductions, and calculating the resulting tax liability. HMRC then reviews the return and collects the amount owed. Sole traders, partners in partnerships, and company directors with income outside PAYE are typically required to register.

Once registered, individuals must submit a return each year even if their tax liability is zero or their circumstances have not changed. Failing to submit on time results in penalties regardless of whether any tax is owed. Our guide to Self Assessment for UK founders covers who needs to register, how the process works, and how to avoid the most common mistakes.