If you work through an umbrella company, your income is normally taxed at source. So, do you still need to complete a Self Assessment tax return?
What is ‘self assessment’?
Self-assessment is how the self-employed, limited company directors, and many other individual taxpayers pay tax on income earned during the previous tax year.
You have until the 31st of January following the previous tax year to file your return and also to pay any tax you owe.
A tax year runs from 6th April to 5th April. So, for the 2024-25 tax year (ending 5th April 2025), you have until January 31st 2026 to submit your tax return.
How are umbrella company employees taxed?
Umbrella employees are taxed at source via the PAYE system. This means your umbrella company deducts any income tax and National Insurance Contributions you owe from your salary before transferring your net pay.
You will see these deductions on your payslips.
You won’t need to complete a self-assessment tax return unless you have income to declare in addition to your umbrella income.
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 be required to file a tax return?
There are several situations where you may still need to file a tax return.
This is typically because you had an additional source of income during the tax year that has not been taxed.
Previous or parallel trading activity
- 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.
Untaxed or partially taxed income
- You have untaxed income for the previous tax year. This could come from any source, including rental income, interest on savings, capital gains, and other sources.
- You have untaxed income from overseas, aside from dividends covered by the dividend allowance.
- You have pre-tax income from savings and investments totalling £10,000 or more.
- You receive trust income or distributions from estates, which is not taxed at source.
- You receive income through crypto assets or other decentralised finance platforms. HMRC considers gains and income from crypto transactions taxable and reportable under self-assessment.
Income thresholds and tax charges
- You might have to pay the High Income Child Benefit Charge. This often catches people out. If you or your partner has an adjusted net income of £60,000 or more per year, then your child benefit entitlement is taxed. The charge tapers in (1% for every £200 over £60,000) and fully withdraws at £80,000. If HICBC is your only reason for needing a return, you can now often pay it via PAYE instead of Self Assessment.
- Your annual income is £100,000 or more. This is often required because the personal allowance taper applies. HMRC may adjust via PAYE in some cases.
- You must pay a tax charge, for example, 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.
Claims and one-off payments
- You want to claim certain expenses worth £2,500 or more.
- You receive taxable redundancy pay or termination payments above the £30,000 threshold.
Read who has to file a tax return on the HMRC site here.
How do I fill in a tax return if I have untaxed income?
You can either complete the Self Assessment yourself, or ask an accountant do it for you.
You can complete your return online yourself. If your tax affairs are simple, this should be pain-free.
Most contractor accountants charge between £100 and £250 per filing, or may do it for free if you’re an existing client (perhaps you work on both umbrella and limited company contractors).
And, unsurprisingly, the closer you are to the 31st January deadline, the higher the fees!
Most umbrella companies can put you in touch with an accountant, or they may be part of a group that includes an accountancy provider. In any case, there are many options if you want someone else to complete your tax return.
You can register for self-assessment via HMRC’s website, but do so well before the October 5th deadline following the end of the tax year in question, as this process can take several weeks.
If you don’t register in time, you may receive an automatic £100 late submission fine, as well as daily interest on any tax you owe (at a mouthwatering 7.75%!)
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