Yes! You absolutely can earn money being self employed whilst being employed. In fact, for those starting their own business holding onto their job can be a way to get together start up money needed or provided much needed income until their business is able to pay them a salary.
You should of course check whether you are under any contract that prohibits you from working as self employed while you are in employment and be careful not to tread on your employers toes for example, by stealing clients as this could give you a bad reputation and jeopardise your employment.
If you have found additional work or are considering self employment on the side of your job you should be aware that you do need to pay tax and possibly additional national insurance.
Unlike your employment income, where your employer takes responsibility for calculating, deducting and paying over income tax and national insurance on your behalf. If you opt to be self employment these responsibilities become yours for any additional income you make.
You will continue to earn your money as normal through the PAYE system but you will need to let HMRC know that you are now going self employed and earning additional income that is not going through your monthly payslip.
How to Let HMRC know
First of all you must let HMRC know that you are self employed and you can do that online here. Once this process is completed HMRC will send you a UTR number (Unique Tax Payers Reference). Keep this safe as you will need this code to file your Self Assessment Tax Return and to set up a Government Gateway Account so you can file your tax return online.
As you are self employed you are required to pay tax under Self Assessment which means you need to submit a personal Tax Return by 31 January each year detailing your trading income, the income tax and Class 2 & Class 4 National Insurance due as well as making a payment for the tax and NI due. Your tax return submitted by 31 January covers the previous tax year for example: your tax return due on 31 January 2018 details your trading income earned between 6 April 2016 to 5 April 2017.
Your trading income, somewhat confusingly, actually means your trading profits (all your income less all your allowable business expenses). Generally speaking, business expenses are only tax allowable if they are ‘wholly, necessarily and exclusively’ incurred in the performance of your business. All expenses must be supported by a receipt, so make sure you keep hold of all your paper or emailed receipts. But it is really important to be aware of which expenses are allowable because they will reduce your tax bill and incorrect claims can result in penalties.
How Much Tax Will I Pay?
Income tax is calculated at different rates according to how much you earn. So for 2017/2018 the rates are:
|Personal Allowance||Up to £11,500||0%|
|Basic rate||£11,501 to £45,000||20%|
|Higher rate||£45,001 to £150,000||40%|
|Additional rate||over £150,000||45%|
So for example if you earn £20,000 in your full time job and earn £2,000 being self employed, then you will pay tax at 20% on your additional earnings (£400).
However say you earned £45,000 in your full time job an additional income of £2,000 would be taxed at 40% – £800.
You may also need to pay Class 2 and Class 4 national insurance as well as income tax. The rates for this are:
|Class||Rate for tax year 2017 to 2018|
|Class 2||£2.85 a week|
|Class 4||9% on profits between £8,164 and £45,000
2% on profits over £45,000
Find out more here.
When Do I Need to Pay the Tax to HMRC?
If you receive a payslip from your employer you will probably have noticed that an amount each month or week is being deducted for your tax and NI and this will continue to happen.
If you need to submit a Personal Tax Return under Self Assessment rules you will need to pay any tax and NI over to HMRC by 31 January each year, along with the return detailing your earnings.
The return submitted by 31 January covers the previous tax year. So for example, your tax return due on 31 January 2018 covers the tax year 6 April 2016 to 5 April 2017.
When you earn any additional money it is important to budget for, so don’t forget to set some money aside for HMRC as you get paid being self employed. If you are unsure you should definitely ask an accountant.