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Do umbrella company employees need to submit a self-assessment tax return?

If you are working on a temporary assignment via a recruitment agency, you might be required to complete and submit a self-assessment tax return. However, whether you do or not depends entirely on your circumstances – as we explain below. Please keep reading for more information.

Umbrella companies process PAYE, meaning you’re taxed at source

Umbrella companies pay their employees in accordance with Pay As You Earn (PAYE) – the UK government’s tax system. PAYE ensures that every employee pays the correct tax and National Insurance Contributions. As an employee of an umbrella company, the umbrella will ensure all the legal tax and National Insurance Contributions are deducted and sent to HMRC on your behalf. You will receive a supporting payslip outlining your net salary and the deductions.

If your only source of income during a tax year is the money paid to you through an umbrella company, you will only be required to submit a personal tax return if you want to claim tax back on expenses accrued throughout the year. This is because you will have paid the correct tax and NIC thanks to PAYE, which all compliant umbrella companies will operate.

However, suppose you have additional sources of income, as well as your salary, which is paid to you by an umbrella company. In that case, you may legally be required to complete and submit a self-assessment tax return.

When would an umbrella company employee need to submit a self-assessment tax return?

You might be required to submit a self-assessment tax return if any of the following apply to you:

  • You have contracted through a personal service company (PSC) during the ta year and have taken funds from your company.
  • You are a landlord and generate income through the letting of buy-to-let properties.
  • You have received income via a trust.
  • You are looking to claim tax back on work-related expenses accrued throughout the tax year.
  • You have received inheritance.
  • You have additional income from outside of the UK (UK taxes may apply).
  • You are not a UK national but have generated income while living in the UK.
  • You buy and sell cryptocurrencies.
  • Your annual income is greater than £100,000.
  • You have an investment portfolio greater than £10,000.
  • You have benefitted from capital gains.
  • You took advantage of a coronavirus support package that you were not entitled to.
  • You are a religious minister.

For more information, please read our blog: When do you need to complete a self-assessment tax return?

If you require assistance, a professional accountant can help

There are hundreds, if not thousands, of professional accountants in the UK that can help you with your self-assessment tax return. The marketplace is competitive, and there are some excellent deals out there. A few accountancy practices offer a self-assessment tax return service for as little as £149 + VAT. However, before you go ahead and approach an accountant, it’s worth understanding the advantages and disadvantages of using an accountant to assist with your self-assessment.

Many umbrella companies are run by organisations that offer additional financial services, such as accountancy. Therefore, if you are unsure whether or not you need to complete a self-assessment tax return, your umbrella company can provide you with a reliable answer or point you in the direction of a partner that can help.

If you are required to submit a self-assessment tax return, be aware of the deadlines

HMRC will issue you a penalty if you fail to submit your self-assessment within the deadline. Below is a brief overview of the deadlines, but for more information, please read our article: Self-assessment tax return: Understanding payment deadlines and penalties.

  • Register for Self-Assessment (if you’re self-employed or a sole trader, not self-employed, or registering a partner or partnership) – 5 October 2022
  • Paper tax returns – 31 October 2022 (midnight)
  • Online tax returns – 31 January 2023 (midnight)
  • Pay the tax you owe – 31 January 2023 (midnight)
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