Do I Need to File a Self-Assessment Tax Return if I’m employed?

When you’re employed, it might seem like your taxes are automatically handled through PAYE (Pay As You Earn), so why would you need to bother with something like a self-assessment tax return? For many people, employment income is straightforward, and tax deductions happen automatically from wages. However, there are situations where you might still need to file a self-assessment tax return, even when you’re employed. Let’s break it down and help you figure out if it’s something you need to do.

What is a Self-Assessment Tax Return?

A self-assessment tax return is a way for individuals to report any income that hasn’t been taxed through the usual payroll system. While your employer takes care of paying taxes on your salary via PAYE, other sources of income, like freelance work, rental properties, or significant savings interest, aren’t covered. This is where the self-assessment comes in—essentially, it’s you declaring all your extra income to HMRC (Her Majesty’s Revenue and Customs) so they can calculate whether you owe additional tax.

Why Would You Need to File a Self-Assessment Tax Return if You’re Employed?

Even if you have a full-time job where your tax is deducted at the source, you may still have to file a self-assessment tax return under certain circumstances. Here are a few reasons why:

1. Additional Income: If you have other sources of income outside of your job—like freelance work, side businesses, or rental properties—this income needs to be declared. Self-assessment tax returns allow you to report these earnings.
2. High Earners with Child Benefit: If you or your partner earn over £50,000 and receive child benefit, you may need to repay some or all of it through the High-Income Child Benefit Charge. This repayment is calculated and submitted through a self-assessment tax return.
3. Investment or Savings Income: If you receive a significant amount of interest from savings or dividends from shares that exceed the tax-free allowances, you need to declare it via self-assessment.
4. Capital Gains Tax: If you’ve sold assets such as property (other than your main residence), shares, or investments, you may owe capital gains tax. You must declare this on a self-assessment return.
5. Claiming Expenses: If you’re employed but incur work-related expenses that aren’t covered by your employer, you can claim tax relief through a self-assessment return. This includes expenses like business travel, uniform costs, or work-related training.
6. State or Foreign Pension: If you’re receiving a pension from abroad or an additional state pension, these might not be fully taxed at the source, and you’ll need to declare them through a tax return.

The Benefits of Filing a Self-Assessment Tax Return

1. Ensures Compliance: Filing a self-assessment tax return ensures you’re compliant with HMRC rules, avoiding potential fines or penalties. If you owe extra tax and fail to declare it, HMRC can impose interest charges or penalties.
2. Access to Tax Reliefs and Deductions: Self-assessment allows you to claim tax relief for eligible work-related expenses or charitable donations. You might also be able to benefit from tax credits like the Marriage Allowance.
3. Better Financial Overview: Filing a self-assessment gives you a clear picture of your finances. It forces you to organize and track all your income and expenses, which can help with budgeting and future financial planning.
4. Avoid Overpaying Taxes: Sometimes, filing a return means you discover you’ve paid too much tax through PAYE. If you’ve been overtaxed, a self-assessment can result in a refund.
5. Control Over Your Taxes: When you file your own return, you have more control over the process. You can ensure all your income and allowances are correctly declared and avoid paying more than you need to.

How to File a Self-Assessment Tax Return

If you determine that you do need to file a self-assessment tax return, the process can be straightforward if you follow these steps:

1. Register for Self-Assessment

Before anything, you’ll need to register for self-assessment with HMRC if you haven’t already. You can do this online via the HMRC website. Once registered, they will send you a Unique Taxpayer Reference (UTR) number and details on how to file.

2. Gather Your Documents

Collect all the necessary paperwork before starting the filing process. This might include:

• P60 form from your employer (which shows your earnings and taxes paid)
• P11D if you receive taxable benefits
• Bank statements showing interest on savings
• Details of other income (e.g., dividends, rental income, freelance work)
• Records of expenses you plan to claim tax relief on

3. Log In to the HMRC Website

Once you’ve gathered everything, log into your HMRC account. You can file online, which is generally the quickest and most efficient way to do it.

4. Complete the Form

Fill out the self-assessment form, including all the relevant sections for your income, expenses, and any reliefs or allowances you’re claiming. Make sure you double-check everything to avoid errors or omissions.

5. Submit and Pay

Once completed, submit the form online. You’ll then receive a calculation of what tax you owe (if any) or what you’re due back. HMRC will also tell you when to pay, and you can settle any outstanding tax via your bank.

6. Keep Records

Once you’ve submitted your return, keep all your records for at least six years, as HMRC may ask for them in case of a query or audit.

Frequently Asked Questions (FAQs)

Q: I’m employed and have no other income. Do I still need to file a self-assessment tax return?

A: If you’re only earning through employment and all your tax is handled through PAYE, you likely don’t need to file a self-assessment. However, you may need to file if you have significant untaxed income, such as investments or rental earnings.

Q: How do I know if I need to file a return for high-income child benefit?

A: If you or your partner earns more than £50,000 a year and receive child benefit, you’ll need to pay back some of it. This must be declared on a self-assessment tax return.

Q: Can I file my self-assessment return late?

A: It’s best to avoid filing late. HMRC imposes penalties for late returns. For example, there’s an immediate £100 fine for missing the deadline, and the penalties increase the longer you delay.

Q: Can I correct mistakes after submitting?

A: Yes, you can amend your self-assessment tax return after submission if you realize you’ve made a mistake. You have up to 12 months from the filing deadline to make corrections.

Q: Do I need to file a tax return if I’m employed and freelance?

A: Yes, if you have additional income from freelance work alongside your employment, you need to report this via a self-assessment return.

Q: What happens if I don’t file a self-assessment when required?

A: Failure to file when necessary can result in fines and penalties. HMRC may also charge interest on any unpaid tax. It’s always best to check with HMRC if you’re unsure whether you need to file.

Conclusion

Filing a self-assessment tax return when you’re employed can seem confusing, but it’s essential to understand when it applies to your situation. If you have other sources of income, earn over a certain threshold, or are claiming reliefs, you may need to submit a return to avoid underpaying taxes. The benefits include staying compliant with the tax rules, getting refunds if overpaid, and keeping a clear record of your finances.