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If you earn significant income from any source, it’s likely that you’ll need to pay tax to HMRC. However, there are different categories and requirements for those who are employed, self-employed, or both. We’ll discuss the different types of UK taxpayers below as well as their obligations.
Individuals who receive salaries or wages through an employer qualify as employed taxpayers. They pay their income tax through the pay-as-you-earn (PAYE) system. Some people who receive pension payments will also fall under this category.
With PAYE, the employer or pension provider takes out income tax and national insurance contributions before the pension or wages are paid. The percentage deducted by the employer will vary by HMRC tax code. Tax codes define which tax rate the taxpayer must pay, and whether they qualify for things like a personal or marriage allowance. This means that when taxpayers receive their wages, they don’t have to worry about paying any additional taxes or filing a return.
The second type of UK taxpayers are those who need to file a self-assessment form to pay income tax and national insurance. This category includes the self-employed as sole traders or partnerships, as well as certain high earners.
For example, you’ll need to fill in a tax return with HMRC if:
You’ve earned at least £1,000 from self-employment
You’ve earned at least £2,500 from any other untaxed income
You’ve earned over £100,000 as an employee
Tax returns can be sent in online or by paper, but you’ll need to register for self-assessment first and receive your taxpayer identification number.
Limited company taxpayers
We’ve already covered UK taxpayers responsible for paying personal income taxes, but what if you own a limited company? Company returns must also be filed by anyone who runs a limited company. All limited companies must register with Companies House to get started. At this time, they can also register for PAYE as an employer and corporation tax. With a Companies House password and authentication code in hand, company directors can then create a government gateway user ID and password.
It’s easiest to file company tax online using these government gateway website credentials, however there’s also the option of filing with the paper CT600 form in some cases. Companies pay tax on income just like individual taxpayers, covering an accounting period of 12 months
What is a unique taxpayer reference?
To keep track of tax payments and liabilities, HMRC assigns all self-assessment taxpayers a taxpayer identification number. This is called the unique taxpayer reference number or UTR. If you fall under a separate category and use the PAYE system, you won’t need a UTR.
All UTR numbers consist of 10 digits, some with the letter K tacked on at the end. UTR numbers function like National Insurance Numbers in that they stay the same throughout the taxpayer’s life. However, you won’t automatically be assigned a UTR; you must first register for self-assessment to receive one. You can do this on the HMRC website or ring the helpline at 0300 200 3310 for assistance.
Some additional information you might need to register for a UTR includes:
Date of birth
National Insurance Number
For those owning a business, HMRC may also take down your business contact details and the date you became self-employed.
Can I be more than one type of taxpayer?
Yes, it’s possible to fall under more than one taxpayer category within the UK. For example, an individual taxpayer could qualify as both employed and self-employed. Perhaps they work part-time as a receptionist in an office, but also work for themselves as a freelance graphic designer on the side. They would qualify for PAYE for the office job and need to file a self-assessment return to report the freelance income.
Limited company directors also fall under two categories; they must file company tax returns to report company profit, as well as self-assessment returns to report personal income taken from that profit. If you’re in any doubt about tax liability, it’s best to speak to an accountant or visit the HMRC website for more details.
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