Many people start a business while keeping their full-time or part-time job. It can be a great way to earn extra income, test a business idea or build a future career without giving up the security of regular employment.

The short answer is yes – you can usually be both employed and self-employed at the same time. However, you’ll have separate tax responsibilities for each source of income.

How does it work?

If you’re employed, your employer will normally deduct Income Tax and National Insurance through PAYE before paying your salary.

If you’re also self-employed, you’ll usually need to report your business income separately through a Self Assessment tax return.

Your employment and self-employment income are combined when calculating your overall tax position.

Common examples

Many people combine employment with self-employment, including:

• Office workers who freelance in the evenings.
• Teachers who offer private tutoring.
• Designers with freelance clients.
• Photographers who work weekends.
• Online sellers.
• Content creators.
• Consultants.
• Virtual assistants.
• Dog walkers and pet sitters.
• Fitness instructors.

Starting part-time allows many people to build a business gradually before deciding whether to become fully self-employed.

Do you need to tell HMRC?

If your self-employed income goes above the relevant registration threshold, you will usually need to register for Self Assessment and report your business income.

Even though tax is already deducted from your employment income, your self-employed earnings still need to be declared separately if registration is required.

Keep your records separate

One of the biggest mistakes people make is mixing employment and business finances.

Keep separate records for:

• Employment income.
• Business income.
• Business expenses.
• Invoices.
• Receipts.
• Bank transactions.
• Mileage, where applicable.

Having organised records makes completing your tax return much easier.

Can you claim business expenses?

Yes. If you’re self-employed, you can usually claim allowable business expenses against your self-employed income.

These expenses are separate from your employment income and should relate only to your business activities.

Keeping receipts and accurate bookkeeping will help ensure you claim the correct amount.

Will you pay more tax?

Not necessarily.

Your overall tax depends on your total income, allowable expenses and personal circumstances.

Some people pay additional tax because of their extra business profits, while others may find the amount is less than they expected after allowable expenses have been deducted.

The important thing is to budget throughout the year so you’re prepared when your tax bill becomes due.

Common mistakes

People who are both employed and self-employed often make these mistakes:

• Forgetting to register for Self Assessment.
• Not keeping business records.
• Mixing personal and business spending.
• Not saving money for tax.
• Missing tax deadlines.
• Assuming PAYE covers all of their tax responsibilities.

Avoiding these mistakes early can save time, money and unnecessary stress.

When should you become a limited company?

Many people begin as sole traders while keeping their employment.

As your business grows, you may reach a point where operating through a limited company becomes more suitable. This depends on factors such as profit levels, future plans, business risk and your personal circumstances.

An accountant can help you decide when, or if, making that change is beneficial.

Final thoughts

Being employed and self-employed at the same time is completely normal and increasingly common.

With good record keeping, sensible tax planning and the right advice, you can successfully manage both sources of income while growing your business with confidence.

If you’re starting a side business alongside your job, Merranti Accounting can help you understand your tax responsibilities, register correctly and keep your finances organised from day one.

 

Written by Steve Watts