Can I Work for an Employer Whilst I’m Also Self-Employed?

The good news is yes, it’s perfectly possible to work for an employer and be self-employed at the same time. In fact, in these tough economic times more and more people are setting up businesses as a source of extra income or to save for something special.

Just bear in mind that if you’re planning to go down this route, check your work contract. Although many employers have no problem with side hustles, some take a dim view – especially if there’s any conflict of interest. The last thing you want is to be accused by your employer of stealing clients and jeopardising your employment!

What are the benefits of being both employed and self-employed?

Like all things in life, there are good and bad points to being both employed and self-employed. The big advantages include:

  • The chance to make extra cash so things are a bit less tight each month
  • Having a back-up plan in case you’re ever made redundant
  • Being able to take what you learn in your employed job, and use it in your self-employed work (and vice versa)
  • The ability to start putting money aside ready to go full-time self-employed if you want to
  • You can make money from your hobbies and the things you really love doing
  • The chance to start a business without worrying about making money right from the start
  • Being able to suss out the pros and cons of both employment and self-employment to better understand what would work for you longer term
  • The chance to learn extra skills such as how business expenses and tax work

Starting a business while being employed

If you do decide to start a business in London from scratch – whether you’re keeping your day job or not – you will probably need to register with HMRC.

We say ‘probably’ because an individual can earn up to £1,000 of self-employed income before they need to tell HMRC and start paying tax on it. Known as the trading allowance, this is totally separate to the money you earn from your boss so yes, you can still use it if you’re employed by someone else.

It’s really handy for people who are just selling bits and bobs on eBay or doing some occasional babysitting. Remember though, even if you don’t need to pay any tax, it’s still a very good idea to keep track of your earnings just to make sure you don’t cross the threshold without realising!

What kind of business should I register?

Most people start off as sole traders because it’s simpler, and you don’t need to register with Companies House (which means your boss can’t check). If your business grows or you want to employ staff, becoming a limited company can be a good option because it can help you be more tax efficient.

This is a really general overview though, so we definitely recommend you do your research about registering as a limited company versus as a sole trader first!

Don’t forget to also sort out your business insurance and make sure it stays up to date. This will help protect both yourself and your assets if any unforeseen accidents or issues occur as part of your self-employment that puts you at risk of legal action.

How does it work with tax?

Even if you think your business is just a hobby, you may well land yourself in legal hot water if you earn more than the trading allowance and don’t declare your income formally. Yes, it might just seem like a bit of hair cutting or dog walking on the side, but the cash can soon add up so it’s something that unfortunately can’t be avoided.

The big take home message here is that when you’re both self-employed and employed at the same time, you pay tax via both your employer (through PAYE), and through Self Assessment. Your employer will continue to pay you through their payroll system and deduct tax as normal – it’s just the self-employed aspect that you need to handle yourself.

You’ll also need to pay Class 2 and Class 4 National Insurance on your business profits, as well as income tax. The current income tax rates for this tax year can be found on the website.

Will my boss know I’m self-employed?

No – in short! HMRC can’t share this information with your boss unless you give permission for HMRC to collect self-employed tax using your tax code. Your boss will only know that you’re self-employed if you authorise this, or if you tell them yourself.

When do I need to complete Self Assessment?

Most people with a side business register as a sole trader, so will normally submit Self Assessment. If your business generates more than £1,000 in a tax year (and we’re talking business income here, not profit), you will need to submit a Self Assessment tax return.
Most people file their Self Assessment tax return online. If this is the case, it will need to be done by 31st January following the end of the tax year. Remember that the tax year runs from 6th April to 5th April year to year.

How much National Insurance will I pay?

When you’re employed, you’ll pay Class 1 National Insurance on your earnings (check your payslip!). Once your self-employed income hits the NI threshold you also pay Class 2 NI as a flat rate, and Class 4 NI as a percentage of your profits. This tax and NI rates article explains these in more detail.

Find out more about the accounting and finance support available for your business, and remember, there’s no such thing as a silly question!