British Citizenship Test

What system must self-employed individuals use to pay their own taxes?

1. Pay-as-you-earn

2. Self-assessment

3. Income tax declaration

4. Tax relief system

The correct answer is: Self-assessment

Self-employed individuals in the UK use the self-assessment system to pay their own taxes. This method requires self-employed persons to calculate their own tax liabilities based on their income and expenses. They must submit an annual tax return to HM Revenue and Customs (HMRC), which details their earnings and any allowable deductions. The self-assessment process allows individuals to report income from various sources and account for any business expenses, making it a flexible framework for those working independently. In contrast, the pay-as-you-earn system typically applies to employees, where employers deduct income tax and National Insurance contributions directly from employees' wages before they receive their salary. The options of income tax declaration and tax relief system do not represent established systems specifically designated for self-employed tax payments in the UK. Income tax declaration sounds generic and does not accurately describe the specific administrative process that self-employed individuals follow, nor does the tax relief system denote a method of payment. Thus, self-assessment is the clearly defined system for tax purposes for those who are self-employed.