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.
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:
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.
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.
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.
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.
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.
|Income from employment||£40,000|
|Profits from self-employment||£14,000|
|Personal allowance (tax free)||£12,500|
|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.
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.
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.
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.
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.
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.
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.
Do you have a side hustle? Let us know in the comments.
We create this content for general information purposes and it should not be taken as advice. Always take professional advice. Read our full disclaimer
22 June 2020 • 9-minute read
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