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A guide to second job tax if you have a side hustle

4-minute read

Catriona Smith

17 March 2021

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So you’re thinking of running a small business on the side? You’ll be joining a growing trend, but it’s important to make sure you're paying the right tax when you're both employed and self-employed in the UK.

How much tax do you pay on a second job?

Perhaps you’re in need of additional income due to the uncertainty caused by Covid-19, or you want to turn a hobby into a business. Whatever your reason for working a side hustle, it’s important that you’re clued up on the tax implications of having two jobs.

Key things to look for:

  • freelancing might push you into a higher tax bracket
  • there might be a conflict of interest with your main job
  • you’ll need to complete a Self Assessment every year

Read our guide to find out what self-employed tax and National Insurance you need to pay if you're both self-employed and employed.

Can you be employed and self-employed?

It’s possible to be self-employed and work a full-time job. This can be a good idea to reduce any financial risk while you’re building your business.

If you’re still weighing up the pros and cons of being your own boss and taking the leap into the world of contracting, read our tips on going self-employed.

Do I need to tell HMRC?

You’re allowed a £1,000 tax-free trading allowance, which means you don’t need to tell HMRC about any income until you make more than that in one tax year. However you may still want to register as self-employed as it can have other benefits.

Register as self employed

When it comes to starting a business (even when you still have a main job), one of the first things you’ll need to do is register as self-employed with HMRC – you’ll need to do this before 5 October to avoid any penalties.

Still deciding whether to register as a sole trader or set up a limited company? Here, we’ve explained the key differences between the two.

File your Self Assessment tax return

You’ll need to file your Self Assessment tax return by 31 January each year. Read our guide on how to do a self-employed tax return and check important tax year dates you need to be aware of.

Calculating income tax on a second job

Income tax is levied on profits or income in each tax year. This is based on combined income from both your main job and self-employment.

So this could mean your profits as a sole trader push you into a higher tax band.

As an employee, your pay slip will show how much income tax you pay and this will be automatically deducted from your salary. However you’ll need to also detail this on on your Self Assessment tax return so HMRC knows what you’ve already paid.

As a self-employed person paying tax on a second income, you’ll need to work it out slightly differently. This is because income tax is based on your profits and you can deduct things like allowable expenses.

How much tax do you pay?

The example below is based on 2021-2022 tax year rates detailed on gov.uk. Note that there are different rates if you live in Scotland.

Tax year2021-2022
Income from employment£40,000
Profits from self-employment£14,000
Personal allowance (tax free)£12,500
Taxable income£41,500
Income tax (20%)£37,500
Income tax (40%)£1,600
Total income tax£9,100

Tax is complicated and this article is intended as a guide. If you aren’t sure, it’s best to seek financial advice from a professional.

Do you pay National Insurance on a second job?

As with income tax, your National Insurance Contributions (NICs) will come out of your salary automatically through PAYE. This is known as Class 1 National Insurance.

You’ll also need to pay National Insurance on income from your side business. You’ll pay Class 2 NICs if your profits are £6,475 or more a year, and Class 4 NICs if your profits are £9,501 or more a year – our National Insurance guide for the self-employed goes into more detail on rates and thresholds.

The government website also has a tool for you to check your National Insurance record.

Side business tax deductions

You can claim allowable business expenses on your side business just as you would as a sole trader without another job. This means you can deduct certain costs – such as office supplies and travel – from your annual turnover and only pay tax on your taxable profit.

What about tax codes for second jobs?

You don’t need a tax code for your self-employed income as you pay tax through Self Assessment. Read our guide to tax codes for more information.

Do I need to tell my employer?

You don’t have to tell your employer, but it can be a good idea to make sure there’s nothing in your employment contract that would prevent you from starting your own business – if there’s a conflict of interest, for example.

It’s worth remembering that if you choose to register as a limited company your business will appear on Companies House and information will be public anyway.

Can I take a second job while on furlough?

Yes. While you’re not allowed to work for your company while on furlough, there’s nothing to stop you working on your side hustle. You’re also allowed to volunteer, take part in training, or work for another employer.

The government’s furlough scheme has been extended until 30 September 2021.

Still deciding on your side hustle?

Popular side hustle jobs include home baking, a courier company, or a jewellery business. See our list of top business trends in 2021 for more inspiration.

Guides to help you start your business

Do you have a side hustle? Let us know in the comments.

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We create this content for general information purposes and it should not be taken as advice. Always take professional advice. Read our full disclaimer

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