The answer is yes you can be self employed and be employed at the same time. It just means that some of your monthly income will be taxed at source through PAYE and some of your monthly income will need to be declared on a ‘self assessment tax return’ by yourself. To make sure you avoid overpaying your tax and national insurance (NI) you also must have to plan ahead. A useful tip is to ask an accountant to help you work it all out with you.
There are various reasons on why you might want to be self employed and employed at the same time. Some people want to add a bit of extra income on top of their normal wage, others may be more entrepreneurial. Many businesses are started by people who are either in full or part time in employment.
Self employed workers will not be paid through the normal PAYE, and also don’t have the employment rights and responsibilities of employees. You can be self employed and employed at the same time, for example if you work for your employer during the day, you can then run your own business during the evenings and weekends or vice versa.
The total amount of tax and national insurance (NI) contributions is based on:
- Your gross salary from your employment.
- Any allowances and reliefs you get.
- Your profits from your self-employment and any other income not already taxed at source.
PAYE (pay as you earn)
As employee you will normally pay income tax and class 1 NI through PAYE. Your employer would automatically make the tax deduction ‘at source’ before you get paid. Your pay slip will have the details of your tax deductions each time you are paid. Your P60 will also detail what taxes you have paid over the year, you should keep your P60 and your pay slips somewhere safe as you may need it in the future.
Income from self-employment
The income you receive from your self-employed work means you will have to be responsible for filing a tax return to pay any income tax and NI that is due. Also it will depend on your self-employed earnings on whether you will have to pay Class 2 and Class 4 national insurance contributions.
Do i have to tell my employer?
Yes and no. It’s understandable that you might not want to tell your employer that your working for yourself and on other projects. You might have to tell your employer as it might be written in your contract that might forbid you for taking on other work, especially if there is a risk of competition with your current employer. Although your tax affairs are entirely confidential and HMRC will not inform your employer if you are also registered as self-employed. Be aware that if you form a limited company your details are publicly available at Companies House, so your employer could search you or your business and find out about what business you run.
Will you get a second tax code?
If your business is run as a limited company, which pays you a salary, you will then get a second tax code for this income. This might not affect your employment allowance, which is usually reflected on your first tax code (from your current employer). If your a sole trader, then you will have to pay tax on your business profits rather than on your wages, so the tax code your employer uses will remain the same.