Self Assessment Explained

What is Self Assessment?

Self Assessment is the process of reporting your income and calculating the tax you owe by filing a tax return with HMRC. It covers any income not already taxed through PAYE, such as profits from self-employment, rental income, dividends, capital gains and foreign income.

Around 12.1 million people file Self Assessment returns in the UK each year. The system runs on a tax year basis (6 April to 5 April).

How it works

First, you register with HMRC for Self Assessment if you have not already. You then file a return by the deadline. Key dates for the 2025-26 tax year:

Late filing attracts an automatic £100 penalty, even if there is no tax to pay. After 3 months, daily penalties of £10 apply for up to 90 days. After 6 and 12 months, further penalties are charged based on the tax owed.

Real example

Kate works full-time earning £40,000 (taxed through PAYE) and runs a freelance business on the side making £8,000 profit. She must file a Self Assessment return because her self-employment income exceeds £1,000 (the trading allowance).

On her return, she reports both the £40,000 employment income (tax already paid) and the £8,000 self-employment profit. The £8,000 falls in the 40% higher rate band because her employment income already uses the basic rate band. She owes an extra £3,200 in Income Tax plus Class 4 NI on the self-employment profit.

Who does this affect?

You must file a Self Assessment return if you are self-employed with income over £1,000, a partner in a business partnership, or if you earn over £150,000. Other triggers include untaxed income from rental property, savings interest above your allowance, dividends above £500, capital gains above the annual exemption, or if HMRC has asked you to file.

HMRC source

gov.uk/self-assessment-tax-returns has the full guide to registering, filing and paying your Self Assessment tax.