Features

• Employees pay taxes through HMRC's Pay As You Earn (PAYE) scheme. Employers deduct tax from each employee's paycheck and forward the funds to the government as income tax. Conversely, self-employed people pay their taxes through self-assessment: A yearly tax return that includes their self-employed income, expenses and profits.
  
  

Time Frame

• PAYE is deducted from every paycheck and is based on the employee's earnings for that period of time. Self-employed people submit their self-assessment returns by October 31 of the next tax year, or January 31 if filing electronically. They must also make two advance payments to their tax account for the current tax year, on January 31 and July 31. These are called payments on account and are based on anticipated tax owed for that tax year.
  
  

Considerations

• Self-employed people should set aside at least 25 percent of their income to pay their tax bill. Penalties and interest are applied to accounts that are filed late or are not paid in full. HMRC will send a bill in advance of the payment due date.