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Can You Be Employed and Self-Employed at the Same Time?

It’s no surprise to us that this is a fairly common query many employed people have – maybe you’re not quite ready to become fully self-employed and need to maintain a salary before you take that leap. Or, on the other hand, maybe you’re self-employed and not quite ready to give up the dream but need a little financial help from a stable salary!

If either of those are you, then we’ve got some good news! There’s no law preventing you from being employed and self-employed at the same time. In fact, there’s pretty much nothing stopping you!

The most important thing you have to keep in mind is how to manage your taxes under these circumstances. If you’re self-employed and employed, you’ll need to pay two different forms of tax. Your income from your employer will be taxed through a Pay As You Earn (PAYE) scheme set up by the company you work for. On the other hand, you will need to complete a Self Assessment to pay tax on your self-employed earnings.

So, that means your taxable income will be based on your total salary from your employment, your total earnings through self-employment and any tax relief or allowances you are eligible to receive.

So, let’s take a look at what those tax systems are and how you can maintain both your employed and self-employed status!

Self-Employed Tax Rates

For the self-employed, your taxable rates depend on the total income you earn from your business. You’ll pay income tax and make National Insurance contributions based on your self-employed earnings.

Depending on the total amount of earnings, you’ll make either Class 2 or Class 4 National Insurance Contributions. The difference between the two is elaborated in that article we linked above – for those earning between £6,515 and £9,568 (for the fiscal year 2021/22), you’ll pay a flat rate of £3.05 per week. This is a Class 2 National Insurance Contribution. For those earning greater than £9,568 but less than £50,270, you’ll pay a 9% tax on profits.

You can complete your Self Assessment Tax Return online through the government website. You must pay your Self Assessment bill by the 31st January.

PAYE (Pay As You Earn)

Unlike self-employed contributions, PAYE is an automatic tax deduction system set up by your employer to manage your tax contributions to HMRC. You won’t have to fill out any documentation yourself as this is done for you. You may have to notify your employer if you’re also running your own self-employed company as this may affect your tax codes.

If you’re earning less than £120 per week or are paid expenses and benefits, your employer will not need to register you for PAYE. For more information on PAYE, check out the government website or our own article on PAYE!

financial documents
Being self-employed may require you to complete and submit various financial documents to HMRC.

Paying Two Types of Tax

In order for you to be both employed and self-employed at the same time, you will have to pay tax in two different forms. As mentioned above, if you’re self-employed, you’ll have to complete a Self Assessment tax return to pay tax on your earnings. For your earnings as an employee of a larger company, you’ll make your income tax and National Insurance Contributions as part of the PAYE system which will automatically deduct your tax contributions from your salary. However, you will need to include earnings from your employment (this will be stated on your P60) on your Self Assessment form.

To help you understand what we mean, we’ve put together a little example.

Let’s start by working out your contributions through PAYE.

Imagine the salary from your employment totals £20,000 for the 2021/22 fiscal period. As the tax-free personal allowance for this period is £12,570, you’ll pay tax on £7,430 of your income. So, in this example you would pay a 20% tax rate through PAYE on £7,430. That means you’d pay £1,486 in income tax contributions.

Remember, you still need to deduct your National Insurance contributions from your income! If you earn more than £184 per week, you’ll pay 12% on your earnings above this threshold up to £967 a week. For earnings over this amount, the rate drops to 2%. So, if you’re earning £20,000 a year, you’ll pay a 12% tax on all your earnings above £9,568 for that period. In our example, you’d pay (0.12 x (20,000-9568=) £1,251.82 in National Insurance Contributions.

So, your take home pay in the 2021/22 fiscal period on your £20,000 would be £17,262.18.

What about your contributions on your self-employed income?

This is where it gets a little complicated. Let’s imagine, on top of your earnings through employment, your small business made £10,000 in the same tax year as your employed income. As you work from home, you’ve also accumulated a range of expenses – that could be office supplies (like stationary or printer ink) or even the use of your broadband.

Let’s say all these expenses total £2,000. That would mean your net earnings as a self-employed individual would be £8,000. So, in your Self Assessment Tax Return, you would record your gross income (£10,000) and your expenses (£2,000 less). As well as this, you will record the income tax and National Insurance Contributions made on the £8,000 profit made in the tax year.

Based on this amount, you could make Class 2 National Insurance Contributions at a flat rate of £2.85 per week on your profits, totalling £148.20 – however these contributions may not be due as they have made on your employed income. As you will have used up your tax-free personal allowance with your earnings from PAYE, your profits will be taxed at 20%. That means you’d pay £1600 in tax on this income. Your take home earnings from your self-employed job would equal £6,400 with expenses totalling £2,000 to be claimed.

That means your take home pay for this fiscal period, including both your employed and self-employed earnings, would total £25,662.18.

The Bottom Line

The good news from this article is that you can certainly be employed and self-employed at the same time. The biggest headache, however, is filing your Self Assessment Tax Return with this in mind. Putting together all these finances yourself and completing the documentation is time-consuming and could draw your focus away from more important things, like running your own business.

That’s why professional services, like Count, can take all this weight off your back, giving you the time to focus on what really matters. If you’re looking to outsource your accounting and bookkeeping services, or need help filing your taxes, take a look at our services for more information.

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