Paying tax and self-assessment
Study note
The way people pay income tax depends on how they earn their money. Most employees have income tax taken automatically out of their wages before they are paid. This system is called PAYE, which stands for Pay As You Earn, so the tax is collected gradually rather than in one lump sum.
People who work for themselves are treated differently. The self-employed usually pay their tax through self-assessment, which means they complete a tax return each year, work out what they owe and pay it. All of this tax, whether through PAYE or self-assessment, is collected by HM Revenue and Customs, known as HMRC. For the test, link employees with PAYE, the self-employed with self-assessment, and HMRC as the body that collects the tax.
Memory tip: Employees pay via PAYE; the self-employed use self-assessment; HMRC collects tax.
Practise this topic
Question 1 of 2
How is income tax usually collected from employees' wages?
Show all questions and answers for Paying tax and self-assessment(2 questions with explanations)
Paying tax and self-assessment: questions, answers and explanations
1. How is income tax usually collected from employees' wages?
- Through PAYE (Pay As You Earn)
- Through the National Lottery
- By paying cash at a police station
- By the local council only
Correct answer: Through PAYE (Pay As You Earn)
Employees usually have income tax deducted automatically through PAYE.
2. Self-employed people usually pay their tax through which system?
- Self-assessment
- Council tax
- PAYE
- The TV licence
Correct answer: Self-assessment
Self-employed people pay tax through self-assessment, completing a tax return.
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