How Do You Pay Tax If You Are Self-Employed And Employed At The Same Time?

If you are working both as an employee and a self-employed individual in the UK, it can be confusing to know how to handle your taxes. At the same time, it is important to understand your tax obligations and make sure you’re paying the correct amount of tax to HM Revenue & Customs (HMRC). In this article, we’ll explain how to pay tax in the UK when you’re employed and self-employed at the same time.

How Do You Pay Tax If You Are Self-Employed And Employed At The Same Time?

If you are employed and self-employed at the same time, you need to pay tax on your income from both sources. 

As an employee, your tax will be paid through your employer. They will deduct income tax (and NICs) from your salary through the Pay As You Earn (PAYE) system. Your employer will provide you with a payslip that shows how much you’ve earned, how much tax and NICs have been deducted, and your net pay. The amount of income tax you pay depends on your tax code, which is based on your income, allowances, and deductions.

Meanwhile, as a self-employed individual, you are responsible for calculating and paying your tax to HMRC under the Self Assessment system. For this, you will need to register for self-assessment and complete a tax return each year. The tax you pay as a self-employed individual is based on your profits, which are calculated by subtracting your business expenses from your income.

You may find that as an employee, your tax return will be simple because your employer will have deducted the correct amount of tax and NICs from your salary based on the tax code assigned to you by HMRC. 

However, as a self-employed individual, your tax return will be more complex. You will need to declare all your income, including any earnings from your employment, and all your allowable expenses. You will need to submit your tax details and payment yourself, before the deadline approaches. You can submit your tax return online or by post.

To pay the tax due on your profits as a self-employed individual you will need to first register for filing a self-employed tax return. This can be done online through the HMRC website or by phone. You will need to provide some basic information about yourself and your business, such as your name, address, National Insurance number, and business start date.

In case you file your self-assessment tax return online, you will need to fill in the details that apply to you when you access your personal tax account. If you are filing your self-assessment tax returns on paper, you need to fill in form SA100 And form SA103S.

You should also keep in mind that employees and self-employed individuals both have to pay NICs, but the rates and thresholds are different. As an employee, your NICs will be deducted automatically from your salary, and your employer will also have to pay NICs on your behalf. 

As a self-employed individual, you’ll need to pay Class 2 and Class 4 NICs. Class 2 NICs are a flat rate of £3.05 per week if your profits are above a certain threshold, and Class 4 NICs are a percentage of your profits.

If you are unsure about how to pay your taxes as a self-employed individual, it is advisable to seek the services of a tax consultant who can help you to make sure that you are paying the right amount of tax.

How Much Do You Pay In Tax If You Are Self-Employed And Employed At The Same Time?

The amount of tax you have to pay is calculated by taking into account your income from all sources, and where you fall within your tax bracket as calculated by HM Revenue & Customs (HMRC).

In the case of your employment earnings being taxed under the PAYE system, the amount of tax you pay will depend on your total income, the tax code assigned to you and the tax bracket you are in. Your employer will deduct these from your salary before you receive your pay.

Below are the tax rates that will apply to your employment income; after your Personal Allowance of £12,570 is deducted from your gross earnings:

• you will pay 0% if your income is up to £12,570
• you will pay 20% income tax if your income is between £12,571 and £50,270 
• you will pay 40% income tax if your income is between £50,271 and £150,000 
• you will pay 45% income tax if your income is above £150,001

For your self-assessment tax returns, you will need to calculate your taxable income by following these steps:

turnover – the cost of sales = gross profit

gross profit – taxes and operating expenses = net profit

If you are a manufacturing concern, your turnover will be calculated as follows:

sales in units x sales price per unit = turnover

In case you are a service provider, freelancer or consultancy, your turnover will be summed up as under:

income 1 + income 2 + income 3 = turnover

You will be required to pay tax on your profit from self-employment if your profit is more than £1,000. Tax on profit is calculated for the 12-month accounting cycle running from April 6 of the base year to April 5 of the current year.

Once you fill in the required forms, HMRC will calculate the amount of tax you owe under self-assessment and inform you through your personal tax account online.

Can You Overpay Your Tax If You Are Self-Employed And Employed At The Same Time?

Yes, you might end up overpaying your tax if you are self-employed and employed at the same time. This usually happens if you’ve either not accommodated any leftover Personal Allowance from your PAYE tax return or if you’ve not deducted certain operating expenses from your self-employed earnings.

If you end up overpaying your tax in such a situation, you can either inform the HMRC during the tax term (and your employer is the overpayment of tax is linked to your employment income) or wait until the end of the tax term when HMRC sends out the P800 form to all taxpayers for their tax calculation.

Before you apply for a tax refund for overpaid tax, you should review the following list of documents to confirm the amount as well as gather evidence to support your tax refund claim:

• form P60 and/or P45 from your employer(s) or pension provider(s)
• form P11D from your employer, if you receive taxable benefits in kind
• details of taxable state benefits that you have received
• bank and building society statements 
• dividend certificates
• details of rental income and expenses
• profit and loss statement of your self-employed venture

Once you’ve gathered the necessary documents and required information regarding overpaid taxes, you can claim a tax refund.

Conclusion:

The above discussion helps to summarise how a taxpayer can pay their tax if they are self-employed and employed at the same time. As an employed individual, you will have your tax calculation and deduction carried out by your employer. However, in your role as a self-employed taxpayer, you will need to file your tax returns yourself under the self-assessment system.

References:

Am I employed, self-employed, both, or neither? | Low Incomes Tax Reform Group

Tax When You’re Employed and Self-Employed – self-employed.co

Employment status: Self-employed and contractor – GOV.UK

Employed and Self-Employed at the Same Time – Is it Possible? – UK Salary Tax Calculator