I’m employed and have a side job – what tax do I owe?
Like the Bermuda Triangle, or Stonehenge, the world of tax in relation to ‘side jobs’ is often viewed as one of life’s great conundrums. Actors who take up part-time work, full-timers who freelance at the weekends – what will it all mean when HMRC comes knocking at the door?!
Don’t panic – in this article we’ll break down exactly what it means (good news: it’s not as complicated as you’d think).
Multiple jobs and paying tax
Here’s the deal – you need to pay tax on whatever money you earn that’s over the government’s standard tax-free allowance of £12,500. That includes all types of income, including from PAYE jobs and freelance jobs, unless you earn less than £1000 from freelance work (this is called a trading allowance – more in that below). It also includes money made through a limited company, but in this article we’re focusing on sole traders. Specifically – what it means when a sole trader also earns income through a fixed job (on a payroll), or vice versa: if an employee does some freelance work on the side of their regular job.
When to register as a sole trader
You can earn up to £1,000 a year through self-employed income without having to declare it to HMRC – this is called a trading allowance. But if you earn anything over that, you’ll need to register as a sole trader. You’ll need to do this by 5th October in second year you’ve been freelancing.
Here’s a couple of examples to illustrate:
- If you work in a full-time job and also run a side hustle selling homemade cookies, but earn less than £1,000 a year doing this – there’s no need to register as a sole trader.
- If you work in a full-time job and also tutor on the side, and make more than £1,000 a year through your tutoring, you’ll need to register as a sole trader.
Does it matter whether your ‘main’ job is PAYE or self-employed?
In most ways, no – it doesn’t matter whether your main job is your payroll job, or your freelance gig, or an equal split. For example, you could be an actor who earns most of their money as a sole trader, but occasionally needs to take a part-time job to make ends meet. Or you could be a full-time digital marketer on a payrolled salary, but also make money teaching piano lessons on an evening as a sole trader. Either way, you’ll need to:
- Register as a sole trader
You do this by registering for Self Assessment (a Self Assessment is also known as a tax return). If you’re in employment and have decided to make money on the side, you’ll need to register as a sole trader by 5th October in your second year of business (only if you make more than £1,000 a year via your side job).
This needs to be done in line with the government’s deadlines – here’s where you’ll declare all the money you earned across the year and pay your taxes (including freelance and PAYE earnings).
Example: An actor who also occasionally works as an employee
Mark is a stage actor and earns the majority of his income (well over £1,000 a year) doing just that – acting. But he also sometimes takes a part-time job during quieter times of the year, when there’s not so much acting work going around. As with all PAYE jobs, Mark’s tax is taken off his part-time job salary before he receives each paycheck, whereas he is responsible for saving a proportion of the money he earns through acting for his tax bill.
In this scenario, the money Mark owes tax on is worked out like this:
Total income from acting + total part-time income – the tax already paid on part-time income
That might look like this: