Self assessment is the HMRC system for reporting income that is not taxed automatically through PAYE. Taxpayers file a return declaring income and gains, calculate the tax due, and pay it, usually by 31 January after the end of the tax year.
In one line: Self assessment is HMRC's process for declaring and paying tax on income outside the PAYE system.
How self assessment works
It applies to the self-employed, landlords, higher earners with untaxed income, and those with significant savings, dividends or capital gains. The return brings all relevant income together so HMRC can calculate the total liability.
A sole trader with 40,000 GBP of profit reports it on the return, deducts the personal allowance, and calculates income tax and National Insurance. The balancing payment for the year is due by 31 January following the tax year (HMRC).
Returns are usually filed online, with paper returns due earlier. Missing the deadline triggers an automatic penalty, and interest accrues on tax paid late.
Self assessment vs PAYE
PAYE deducts tax automatically from wages and pensions before payment. Self assessment is for income that has not been taxed at source, putting the responsibility on the taxpayer to report and pay.
Many people use both: an employee taxed under PAYE may still file self assessment to declare rental profit or to repay child benefit through the high income charge.
Primary source: GOV.UK: Self Assessment tax returns