Income Tax
Income tax is payable on any income, whether it's derived from working or investment. Every person however can earn a certain amont of money each year before tax kicks in. This is the Personal Allowance.
Most people are employed, thereby paying their tax weekly or monthly under PAYE. But others are self-employed and pay their tax in arrears, via two instalments a year.
Usually, you won't have a choice as to whether you're classed as employed being taxed under PAYE or self-employed, being taxed under Schedule D. Your job and the way you work will lead the tax man to determine your status, although there are occasions when you can successfully challenge this.
You may, however, be both, if you are employed by an organisation and in addition you have some freelance earnings. The taxman prefers people to be classed as PAYE because it's simpler and you pay the tax quicker.