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:

Acting (sole trader) income £15,000
Part-time (PAYE) income £19,000
Tax paid through payroll on part-time (PAYE) income £1,298
Personal (tax-free) allowance £12,500
Taxable income at Self Assessment (£15,000 + £19,000) – (£1298 + £12,500) = £20,202

And the flip side of the coin is the same. If you work in full-time employment but earn money freelancing on the side, you can use the same method above to work out your taxable income.

Paying National Insurance when you have a side job

When you work a PAYE job and a freelance job, paying National Insurance works kind of similarly to the way you pay tax. National Insurance contributions will go out of your PAYE salary automatically, just as your tax does – this is called Class 1 National Insurance. But you’ll still need to pay National Insurance on your sole trader income too, which you’ll do via Class 2 and Class 4 National Insurance (see below for more details). 

Unlike tax, though, you’ll find out how much National Insurance you owe after you’ve submitted your Self Assessment. HMRC will work this out by adding up your total income from both PAYE earnings and sole trader earnings, and subtracting the National insurance you’ve already paid. They’ll then work out what you then owe via Class 2 and Class 4 National Insurance on the remaining amount. 

Class 2 and 4 National Insurance Rates

  • Class 2: If your sole trader profits are £6,475 or more a year (on top of what you earn in your PAYE job) you’ll pay £3.05 a week.
  • Class 4: If your sole trader profits are £9,501 or more a year (on top of what you earn in your PAYE job), you’ll pay 9% on profits between £9,501 and £50,000 and 2% on profits over £50,000.

Is there a chance I could end up paying too much tax with multiple jobs?

When you flit between employment and self-employment, there’s a chance you might over-pay on tax on your PAYE job (don’t worry though, you’ll get it back). This is because the tax you owe is worked out based on you earning that particular salary over the course of a year. 

Say you got a full-time job with a salary of £40,000, but only worked at that job for three months before pursuing your passion as a freelancer. In this instance, you’d have paid tax over those three months as though you’d be earning a total of £40,000 that financial year. 

But in reality, you may end up earning less than that – let’s say between your freelance work and the stint at the full-time job you earned a total of £25,000. So, when it comes to doing your tax return, you’d probably be pleasantly surprised to find you’ve already paid a decent chunk of your bill. You may even have paid too much, in which case you’ll be in for a refund. Nice. 

Documents you’ll need if you work as PAYE employee and as a self-employed person

When it comes to doing your tax return if you’ve earned money in regular employment and self-employment, you’ll need a P60 (you’ll get this at the end of the financial year from your employer) OR p45 (if you left the job before March 31st). This is to prove the money you earned from your payrolled job, and the tax you’ve paid too. 

Can I claim business expenses if I have a side job?

Yes – doing any sort of self-employed work means you may be able to claim business expenses when it comes to paying your tax bill. These could be for things like:

  • Equipment you buy for your self-employed work
  • Home office expenses if you work (in any capacity) from home
  • Car running costs for journeys associated with your self-employed work

Head to our hub on self-employed expenses to learn more >

Finmo experts are here to help

Tax stuff can be hard to get your head around, especially when you’ve got multiple sources of income. Our tax experts are here to help – with one of our plans you can pick the brains of our accredited accountants and have your Self Assessment fully reviewed too. 

Find out more >

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