Do you need to file a self-assessment tax return as an umbrella company employee?

If you’re an employee of an umbrella company, surely you don’t have to complete a self-assessment tax return, as your income has already been taxed at source, right?

What is ‘self assessment’?

Self Assessment is the method by which the self-employed, limited company directors, and a significant number of other individual taxpayers pay tax on any income earned during the previous tax year.

You have until the 31st January following the previous tax year to file your return, and to pay any tax you owe.

A tax year runs from 6th April to 5th April. So, for the 2022-23 tax year (ending 5th April 2023), you have until January 31st 2024 to submit your tax return.

How are umbrella company employees taxed?

Umbrella employees are taxed at source via the PAYE system. This means that your umbrella deducts any income tax and National Insurance Contributions you owe on your salary, before transferring your net pay.

You will see these deductions on your payslips.

Unless you have other income, in addition to your umbrella salary, then you won’t need to fill in a self assessment tax return.

Below, we’ve listed the reasons why you might still have to complete a return. Including several reasons many people don’t realise exist – particularly if you receive child benefit.

When might an umbrella employee have to fill in a tax return?

There are a number of scenarios where you may still need to fill in a tax return – this will typically be because you had an additional source of income during the tax year which has yet to be taxed.

• You were a company director or sole trader during the tax year in question, and have tax to pay on that income. This could be because you switched to an umbrella during the tax year in question.
• You have untaxed income for the tax year in question. This could be from any source including rental income, interest on bank savings, capital gains, etc.
• You might have to be the High Income Child Benefit Charge. This often catches people out. If you or your partner have an adjusted net income of £50,000 or more per year, then your child benefit entitlement is taxed.
• Your annual income is £100,000 or more.
• You want to claim certain expenses worth £2,500 or more.
• You have untaxed income from overseas, aside from dividends which are covered by the dividend allowance.
• You have pre-tax income from savings and investments totalling £10,000 or more.
• You have to pay a tax charge of some sort, e.g. because you have made ‘excess’ pension contributions.
• You have some other unpaid tax for the year in question, which could not be collected by PAYE for some reason.

How do I fill in a tax return, if I have untaxed income?

There are two ways you can tackle the self assessment process.

You can either complete your return online – yourself. This should be fairly pain-free if your tax affairs are fairly simple.

Alternatively, an accountant can complete the form on your behalf. Most contractor accountants charge between £100 to £250 per filing. The closer you are to the 31st January deadline, the higher the fees!

Most umbrella companies will be able to put you in touch with an accountant, or they may be part of a group which includes an accountancy provider. In any case, there are many options if you want someone else to complete your tax return.

UCUK Special Offer - £12/week umbrella