Freelancing while working full time is super common in this day and age. In fact, many new businesses start out this way as it provides a valuable safety net whilst you find your feet with your new business venture.
If you’re thinking about freelancing on the side, it’s likely you’ll be wondering about the tax implications and how it works. Read on to find out all you need to know about tax when you’re freelancing and working full-time.
Am I allowed to freelance on the side?
This will depend on your employer. Before you set out it’s a good idea to check your employer’s policy on freelancing. Most companies will have a clause built into your contract that covers freelancing on the side, some may prohibit it entirely, whereas others may just restrict you from dealing with a direct competitor or client.
Do I have to pay tax if I’m freelancing and working full-time?
Yes, you do. A common mistake many make is believing that because they pay tax with their employer, this means they don’t have to pay additional tax with their side hustle. However, you do need to notify HMRC and set up as a sole trader and do a self-employed tax return each year.
To make your life easier, make sure you keep any financial records to do with your business – both income and expenditure – and you might wish to open a business only bank account to keep your finances separate.
Income tax
Tax will continue to be deducted under PAYE for your main employed role, but the income tax for your self-employed venture will need to be paid on your self-employed tax return (to be completed by 31st January). It’s important to note that income tax is calculated on total earnings and you’ll need to disclose how much tax you’ve already paid from your employer when you complete your tax return so HMRC knows you’ve already paid for this part of your income.
You do get a tax-free personal allowance of £12,570 but some of your base rate of 20% up to £50,270 will be used from your main employed role. This means that your self-employed profits will likely fall into the higher rate bracket of 40%. Learn more about income tax rates in our article.
National insurance
As a sole trader you’ll need to pay class 2 contributions of £3.05 per week directly to HMRC if your profits exceed £6,515. If your profits fall between £9,569 and £50,270, you’ll need to pay class 4 contributions of 9% annually and 2% on all profits above £50,270. Much like with your income tax, your national insurance is worked out through your self-assessment.
VAT
If your annual turnover is over £85,000 as a self-employed individual in the past 12 months, you’ll need to register for VAT too. Find out more about VAT tax returns in our guide.
Can I claim expenses if I’m freelancing on the side?
Yes, you can offset some business expenses against your income and pay less tax if you’re freelancing while working full-time, these are known as allowable expenses. However, you’ll only be able to claim on costs which are exclusive for your business. Take a look at our self-employed allowable expenses list to see what you could claim.
When should I tell HMRC that I’m freelancing on the side?
You should tell HMRC that you’re freelancing and working full-time as soon as you start trading. It’s actually a legal requirement to register as a new business if your earnings as a sole trader are above £1,000 during a tax year. Once you’ve earned over this bracket you have until the 5th October after the end of the tax year to register with HMRC and register for self-assessment. If you miss this deadline, you’ll face a penalty. However, if you’re only doing the odd job and your self-employed income won’t exceed £1,000, there’s no need for you to register with HMRC.
How Accountancy Solutions can help
Looking to start your own self-employed venture but are feeling a bit bogged down with the tax implications? Don’t worry, we can help! Our team of friendly personal accountants can contact HMRC on your behalf and will be more than happy to assist you with your finances. Get in touch today for a free, no obligation quote.
Now you know all about freelancing on the side and the tax implications that go along with it! Want to find out more about becoming self-employed? Read our 10 top tips for starting a new business, next.