In this article, you’ll find out whether you can be employed and self-employed at the same time.
We’ll walk you through everything you need to know about managing your income taxes and declaring your profits with HMRC legally. Discover:
- Can you be employed and self-employed at the same time?
- Reasons why you might hold dual-employment
- What this means for your taxes
- What you’ll need to declare your income
- How to stay tax compliant with Countingup
Can you be employed and self-employed at the same time?
The short answer is yes; you can be employed and self-employed at the same time.
Sometimes life is messy and there can be overlaps in your income between different jobs or from a new business you’ve started. Whether you’ve become self-employed alongside your job or are considering your options before launching your business, we discuss how this impacts your taxes in the next section.
Reasons why you might hold dual-employment
Many new entrepreneurs start a business because they’re talented at what they do or think they can improve their income in the long term. However, for whatever reason, transitioning to running their business full-time isn’t yet viable. Here, they may be employed and self-employed for some time.
Common examples include craft, fashion or e-commerce businesses where you’re producing something for customer. Similar service examples cover businesses like graphic design, consultancy or freelance writing. Each of these businesses can be run in your spare time and alongside existing jobs to help make ends meet or as the first step towards a career you’re passionate about.
Regardless of your reasoning, as long as you declare your self-employed income, and pay the taxes you owe, it shouldn’t be an issue.
What this means for your taxes
Changes to your tax bill will depend on how much you earn from your employment through your job versus how much you make from your business, and whether you’re a sole trader or a limited company director. If you’d like to learn more about the differences between these businesses, read our article How to set up your business: Sole trader or limited company.
For the rest of the article, we’ll assume you make enough money through your job to use all of your personal allowance. This is where you earn up to £12,570 paying some national insurance with any earnings over this threshold subject to income tax.
As a sole trader
A sole trader is someone who has registered with HMRC to declare they receive some form of income from self-employment. Currently, each year, you’ll need to fill out a Self Assessment tax return and pay:
- Class 2 national insurance if your profits are £6,515 or more a year
- Class 4 if your profits are £9,569 or more a year
- Income tax at the correct rate or rates using your total income (job + business profits)
When calculating your tax and national insurance payments for the year, you’ll only need to use profit figures from your business. This is because income tax and national insurance payments for your job’s income are handled automatically through the PAYE (pay as you earn) system.
Fortunately, sole traders also have access to another tax-free allowance if their business is just getting started. This is called a trading allowance which allows you to run your business and earn up to £1,000 in gross profits tax-free, before you’re required to register your business with HMRC.
It’s worth noting that you can register and declare your income below this threshold which may be advantageous if you need to report a loss and claim tax relief for future trading. If your business earns more than this, you’ll need to file Self Assessment tax returns and claim expenses as normal. Find out which expenses qualify here.
As a limited company director
Limited companies operate differently from sole traders. Directors of limited companies are considered to be employed by the company they run for tax reasons. Therefore, you’ll need to do the following:
- Register the company as an employer with HMRC
- Set up and use a payroll system (even though you’re paying yourself)
- Have the company pay the employer’s share of national insurance for you
- Have the company make deductions on your income to pay your income tax and national insurance.
When paying income to yourself from a company through PAYE (pay as you earn), you’ll need to tax salaries or wages, and any bonuses you receive as the director. You’ll also need to generate an estimate for what you expect to earn. Using this estimate, HMRC will give you a tax code to use when calculating your income tax.
HMRC has dedicated advice and regular webinars to help company directors manage their income available online.
Tax on dividends
If you receive income from your company through dividends, you’ll need to tax them differently. This might not affect you early on as you’re just setting up, however, it will remain available as an income source that you may wish to use.
Find out more in our article What is a dividend? to learn more about dividends, why they’re treated differently, and how to tax them correctly.
What you’ll need to do to declare your income
When running a business, you’ll need to keep records of your trading. This will include records of your income and expenses, shown on things like invoices and receipts that your business receives and your business issues to customers.
In the coming years, businesses are expected to transition to digital bookkeeping through HMRC’s Making Tax Digital (MTD) initiative. In particular, sole traders with an annual income over £10,000 are expected to register for their income tax by April 2023. Similar schemes for other taxes are either already live or are planned as early as 2026.
Therefore, you’ll need to transition to accounting software soon as your business grows in order to stay tax compliant.
How to stay tax compliant with Countingup
Get ahead of the tax requirements for your new business and manage your income tax with ease with Countingup.
Countingup is the business current account with free, built-in accounting software that’s MTD-compatible. With all your financial information in one place, Countingup can automate your financial admin and save you time.
Countingup comes with real-time profit and loss data and a receipt capture tool, so you can quickly and easily update and understand your financial records on the go.
The app also provides tax estimates and an automated expense categorisation feature so you can trust your accounts are tax compliant and accurate.
Gain complete confidence in your business’ finances. Find out more here and sign up for free today.