You can both be “employed” and “self-employed” in the eyes of the government at the same time by having a job and doing odd (or not so odd) work as a freelancer, whether the freelance job entails the same skills as your main employment or not. In either case, there is tax implication as to national insurance payments and tax-based on self-employment.
There are two main ways that this “dual employment” can arise. One is making some extra money with no intention of leaving your “secure” job. The other is probably the most common – starting a side business with the intention of breaking free in the future.
It’s always best to do your research as letting Tax issues “sort themselves out” in the future usually means a rather large lump sum tax demand and a lot of stress to boot.
The basic workings of the tax system are based on the calculation of Income-tax on total earnings, the consequence of which is that you will pay tax on the combined total of your employed and self-employed profits above your personal allowance. The main problem to be wary of is that any self-employed profits could push your earnings into a higher tax band and depending on your main job could mean a reduction in total take-home pay until the extra income increases by a much larger amount.
Simply put, you will have to pay income tax of 20% on all earnings above the personal allowance (£12,500 at this writing) and below £37,500 (the upper limit of the basic rate at this time). Anything over £37,000 will be taxed at 40% up to the next tax band.
When preparing the Self-Assessment tax return, disclosure of the tax paid on your employed earnings will be required. HMRC will then calculate the tax you will need to pay on your “self-employed” profits after they receive your self-assessment form.
National Insurance implications
National Insurance (NI) on self-employed profits is again calculated by HMRC on submission of your SA form. The NI paid on your employed income will stay the same but you will need to pay NI on the self-employed profits.
Self-employment profits exceeding £6,365 (as at 2018/2019) are charged at a flat rate of £3.00 paid weekly (class 2 NI). It’s usually less trouble to do this by direct debit. Class 4 National Insurance is charged at 9% for self-assessment profits between £8,632 and £50,000. Finally, 2% is charged for profits greater than £50,000.
Useful site: Government National Insurance site
Which to choose: Sole trader or Limited company?
This is not an easy choice if you are intending to leave employment in the future. If you are just earning extra income and your total income plus profits will not take you into the next tax band then a sole trader is probably best. A limited company means you are not liable for the debts of a company but a limited company can be searched for on companies house. If you don’t want your employer to know you are moonlighting – tread carefully.
Assuming your main wage is above or close to your personal allowance, your first few freelance payments will take you above that allowance and it’s your duty to register for Self-Assessment as a new small business. If you don’t do this by about 5th October you risk a fine.
What about my employer?
Although it won’t be a problem in most cases you need to be sure that your employment contract does not explicitly forbid working on other projects (even in what is “your own time).
Your Tax affairs are confidential and HMRC will not inform your employer if you register for self-assessment, but as mentioned above, a limited company’s details are publicly available at Companies House. If you work for an engineering firm and build dog kennels as a sideline telling your boss shouldn’t be a problem. Building up a business for an engine that will eat into your employer’s customer base … well, you decide.