Can I be employed and self-employed at the same time?
The short answer is yes, and you may be surprised at just how common this is! There are countless individuals all around the UK that are both employed (full time or part time) while also being self-employed at the same time. The key difference between employment and self employment is that you are taxed at source when employed, whereas self employed income is paid gross (i.e. what you invoice for, you should receive) and the associated tax is calculated after inputting all of your business income and expenditure onto the self employed supplement within your self-assessment Tax Return.
In recent years, especially with the impact of COVID-19, there has been a significant increase in hobbies and ‘side hustles’ becoming viable income sources. In addition to this, COVID-19 has provided many people with the opportunity to reconsider their career paths. In this scenario it may not always be an option to leave your regular job straight away, requiring you to freelance in the evenings or weekends while remaining simultaneously in employment so as to pay the household bills.
What does being self-employed mean?
You may think being self employed means to own or rent a shop/office, have multiple employees and spend lots of money on equipment. Though all of these factors would definitely point towards self employment, it is important to note that you are just as ‘self employed’ if you earn £5,000 per year with none of the aspects mentioned above- so long as you are the one making the decisions and responsible for your own taxes. Being self employed effectively means that you are personally responsible for running your business and therefore also ultimately responsible for it’s future success or failure! As the final decision maker, you have the responsibility of the business’ direction, the hours you work, the products/services offered (and usually the prices you sell them at) and all of the reporting requirements to HMRC.
There tends to be a lot more risk, responsibility and administrative duties attached to self employment than if simply employed, and so the natural question would be why millions of people take the plunge? The answer for this is always very varied, but usually can be boiled down to what your chosen industry’s expectations are as to trading status, wanting to be your own boss and the ability to earn more money than if employed in the same role.
How do I know if I am self-employed?
Let’s start first with the definition from HMRC: ‘You’re self-employed if you run your business for yourself and take responsibility for its success or failure’. In order to apply this definition to your own circumstances, ask yourself the following questions and if your answer is ‘yes’ to most of them, this is a good indicator that you are operating as self-employed:
- Are you responsible for ensuring Tax and National Insurance is paid to HMRC?
- Do you provide an invoice for your services/goods?
- Are you required to provide/utilise your own equipment?
- Can you work with multiple clients at the same time?
- Are you able to hire others to assist or complete the work, if needed?
- Do you set your own hours (contract dependant)?
- Do you have control over the services you provide/goods sold?
- Do you have/are you required to have insurances such as professional indemnity or public liability?
- Do you tend to work on a project by project basis?
Another indicator of self employment is the lack of ‘employment’ benefits such as holiday pay or sick pay which will result in you not being paid for the days you do not work. This also works the other way around! Unfortunately there may be times in which a fixed price is agreed, but you are required to work more hours than anticipated (perhaps to correct an issue) and you may be unable to invoice for the extra unexpected time spent working.
What do I need to do if I am classed as self-employed?
If your earnings exceed £1,000 during the tax year (6th April to 5th April) via your self-employed business, it is a legal requirement that you register with HMRC as self-employed. Following this, you will need to ensure that a Tax Return is submitted to HMRC each tax year that you meet the above condition. It is important to understand that the £1,000 is income received and should be calculated prior to taking into consideration any allowable expenses.
We would (as you may expect) recommend that you speak to an accountant if you are unsure on how to complete your self-assessment Tax Return. Any errors made when completing your Tax Return could cause significant issues with HMRC, and with the huge amounts of money and resources being invested into HMRC’s investigations unit you may want to consider the costs and benefits on allowing a professional to take on this responsibility to reduce the risk of errors. If, however, you would prefer to do this yourself, the following link will walk you through the steps of registering with HMRC: https://www.gov.uk/register-for-self-assessment/self-employed.
What is a self-assessment Tax Return?
A self-assessment is a standard Tax Return on which all income earned within the relevant tax year is reported to HMRC, ensuring the correct amount of tax and national insurance is paid each year. Examples of income to be declared would be items such as employed earnings, self employed profits, income received from renting a property out, dividends received from shares held and assets/investments sold in the tax year. It’s important to note that though HMRC may already have a record of your PAYE earnings in the tax year, you must still also include all these details onto your Return (and therefore remember to always keep hold of your P60/final year end payslip!). This requirement to complete an annual Tax Return makes it extremely important that you keep your self-employment records up to date, and we have already outlined how best to keep track of your business expenses here.
The deadline to submit your annual Tax Return online is 31st January each year, with deadlines for paper submissions (which as you may suspect are far less common now) being three months earlier on the 31st October.
What Tax/National Insurance am I liable to pay?
This is where it can start to get complicated, as there are so many variables that will dictate what taxes you will pay and at what rate! We have listed some basic tables for you below for both income thresholds and tax/NI brackets, but due to the complexity of operating both as employed and self-employed, we would recommend giving us a call to chat through your individual circumstances:
Income Tax:
Tax Band Tax Rate (Tax Year 2021-22) Taxable Income (Tax Year 2021-22)
Personal Allowance 0% Up to £12,570
Basic Rate 20% £12,571 to £50,270
Higher Rate 40% £50,271 to £150,000
Additional Rate 45% Over £150,000
It is worth noting that whilst PAYE/employed you will pay tax on gross income, whereas the self employed pay tax based on their profit (being business income less allowable business expenses). As your profits from self-employment may push your total income in the tax year into a higher tax band (as your total income increases), it makes it even more important to know what legitimate business expenditure you can offset against your income.
Self Employed National Insurance:
Type Rate (Tax Year 2021-22) Thresholds (Tax Year 2021-22)
Class 2 £3.05 per week Profits above £6,515
Class 4 9% On profits between £9,569 and £50,270
Class 4 2% On profits over £50,270
In summary you absolutely can be both employed and self-employed at the same time, but it is essential that you register with HMRC for self-employment if your income from that trade exceeds £1,000 within a tax year (6th April to 5th April).
Being self-employed can save you significant sums of money while also allowing you to be your own boss, but these perks do come side by side with added responsibilities that must not be ignored. We would highly recommend ensuring that your tax affairs are always in good order (check out the linked blog posts above for our advice on this), and that your Tax Return is submitted well in advance to not only avoid late filing penalties, but just as importantly to have full visibility over your business affairs.
We hope that this blog post has helped to tackle a very common, but important, question. As always, if you would like specific advice or have any questions, please do get in touch with us and one of team will be happy to help.