Can you be employed and self-employed at the same time?

There’s no reason why you can’t earn a little extra cash on top of your main job. However, it helps to be aware of some of the potential pitfalls before starting your own business.

Setting up a side hustle is a great way to make money while having fun. This guide explains how you can be an employee and successfully self-employed at the same time. 

Key takeaways

• You can be employed and self-employed at the same time as long as your employment contract does not prevent it

• You’ll pay tax through PAYE on your employed income, but you may need to complete a self assessment tax return for any self-employed earnings above £1,000

• It’s important to keep clear records with separated income and expenses to understand how both roles affect your tax and National Insurance

Can I be an employee and self-employed? 

Not only can you be an employee and self-employed simultaneously, but more than 40% of the UK workforce has a side hustle running alongside their main source of income according to research from Henley Business School.

Many people look to earn a little extra to help them through lean times, while others find it a fun way to save for holidays or special treats. And it’s not small change, with the Royal Mail identifying the average side hustler earns £450 per month (£5,420 a year).

What are the pros and cons of being employed and self-employed?

There are several benefits and pitfalls of being self-employed and employed simultaneously, including:

Pros

• You can earn extra money by doing something you enjoy

• You can build up a fund for special purchases or to help clear debts

• You can develop skills in areas that may help you get another job, such as computer coding, marketing or website design

• It’s flexible, so you can pick it up or drop it when it suits you

Cons

• You could take on more than you can manage, upsetting your work-life balance

• You may incur some set-up costs to get going, such as buying stock

• It may take time and effort before you start earning – for instance, if you need to create a website

• You may be liable for income tax and have to comply with relevant laws, such as the Consumer Rights Act

• You may require specialist business insurance

Read more: How to set up a business with no money

How does tax work if I am an employee and self-employed?

When you work for a company, your employer is responsible for deducting income tax and National Insurance contributions before your salary lands in your account. The most common system used is pay as you earn, or PAYE.

If you start working for yourself, either alongside your day job or full-time, you’re responsible for paying tax and NI contributions on self-employed earnings over a certain threshold.

Currently, the first £1,000 you earn in a year is tax-exempt. This means you don’t usually need to register with or tell HMRC about your self-employed status and earnings until your annual revenue exceeds £1,000, regardless of how much PAYE income you get.    

There are exceptions to this rule. For instance, you must register for a self-assessment tax return if:

• You’ve made a loss and want to claim tax relief

• You need to pay voluntary Class 2 NI contributions to help qualify for certain benefits

• You want to claim Tax-Free Childcare based on your self-employment income

• You want to claim Maternity Allowance based on your self-employment status

If your gross income for the tax year exceeds £1,000 you must register for self-assessment by 5 October of the following year. 

💡 Editor insight: The UK side hustle boom (and why tax planning matters)

Do I need to tell my employer if I am self-employed?

There’s no legal requirement to tell your employer you’re working a side hustle unless there’s a clause in your work contract that forbids or places limits on self-employed work. But that doesn’t mean keeping quiet about your sideline is wise.

Here are four reasons why it might be a good idea to tell them:

1. Potential restrictions

Your contract may restrict or ban self-employed work for a specific reason, such as to prevent a conflict of interest. For instance, a haulage firm may ban freelancing to prevent an HGV driver from turning up to work tired after moonlighting as a taxi driver. However, they may have no problem with a member of the office staff dog-walking at the weekends. The clause might also exist to prevent employees from setting up or working for rival firms.

2. Maintaining trust

Your employer may feel put out if they find out on the grapevine that you’ve taken on a second, self-employed job out of hours. It may be better to let them know your plans to avoid any awkwardness.  

3. They may be able to help

Your boss may welcome your energy and enthusiasm for self-development. They might even be willing to cut you some slack if you need to work from home one morning to take deliveries or offer advice if you encounter a problem. 

4. It might boost your work prospects

While some extra-curricular work might have nothing to do with your day job, others could benefit your employer. For example, say you plan to set up a YouTube channel on a non-work-related subject.

Your manager may be willing to support you by covering study or tech costs in return for you sharing your expertise when the company is looking to raise its online profile. Who knows? It may even lead to a new role at work.