In short, Yes! You absolutely can be employed and freelance on the side. Actually, you will find that there are many freelancers holding onto full time or part time jobs while they grow their own freelance client base and their freelancing pays them the salary they need.
You should of course check whether you are under any contract that prohibits you from working as a freelancer 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 freelancing 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 become a freelancer it will be your own responsibility to pay calculate and pay over any tax and national insurance on 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 freelancing (or 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 a freelancer 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 on your Freelance Income ONLY (not your employment income). 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?
As you are a freelancer, you will need to submit a Personal Tax Return under Self Assessment detailing all your earnings (both employed and self employed) and then pay any tax and NI over to HMRC by 31 January each year. This tax return will cover 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.
In order to complete your self assessment you will need to include the amount your earned in your employed and this will be contained on either a P60 or a P45, if you left your job. These documents, really importantly, contain the amount of tax deducted each month from your payslips by your employer which you have already paid for the tax year, so make sure you include the figure you have already paid so you do not pay tax twice on your earnings.
Don’t Get Caught Out!
Tax rules can be tricky to navigate if you are new to being self employed or freelancing. Set money aside for your tax bill every time you get paid to avoid any nasty surprises at tax time. Depending on your earnings 20% or even 40% of the money you earn may belong to the tax man. Payments on account are another surprise, where depending on your self employment earnings you may be expected to pay a portion of your tax bill in advance by 31 July of each year.