Employed and self-employed: how your tax works

The short answer: your job is taxed through PAYE as usual. Your self-employed profit is added on top of your salary on a Self Assessment return, so it is taxed at your highest rate. Class 4 National Insurance of 6% applies if your self-employed profit on its own is over £12,570. There is no second personal allowance. On a £35,000 salary, £8,000 of side profit costs about £1,600 in tax and National Insurance.

Tax on £8,000 of side profit at different salaries

Class 4 National Insurance is worked out on self-employed profit alone, so £8,000 of profit pays none, whatever your salary. Income Tax is different: the profit sits on top of your salary. Cross £50,270 and part of it is taxed at 40%.

How it is taxed, step by step

1. Your employer deducts tax and National Insurance from your wages through PAYE, using your personal allowance.
2. After the tax year ends on 5 April, you file a Self Assessment return with your profit (income minus expenses) and your PAYE figures from your P60.
3. HMRC works out the tax on your total income and subtracts what PAYE took.
4. You pay the rest by 31 January, plus Class 4 National Insurance if your profit is over £12,570.

Payments on account

If your Self Assessment bill is over £1,000 and less than 80% of your tax was taken at source, HMRC asks for payments on account: two advance payments towards next year's bill, each half of this year's. In your first year with a £1,600 bill, you could owe £2,400 by 31 January, then £800 more by 31 July. Set money aside from the start. If PAYE on your job already covers 80% or more of your total tax, you won't have to make them.

Reducing the bill

• Claim expenses: every allowable cost cuts your profit. See self-employed expenses.
• Trading allowance: if your expenses are low, deduct £1,000 instead. Income under £1,000 doesn't need declaring at all. It rises to £3,000 from April 2027.
• Pension contributions: paying into a personal pension can bring income back below £50,270 or £100,000.
• Losses: a loss in your business can usually be set against your salary to get a tax refund, if you trade commercially.

Things that catch people out

• The £100,000 trap: combined income over £100,000 reduces your personal allowance. See the 60% tax trap.
• Student loans are charged on total income, collected through Self Assessment for side profit.
• Child Benefit: side income counts towards the £60,000 High Income Child Benefit Charge threshold.
• Universal Credit: self-employed earnings are reported monthly and can affect your award.
• Your contract: check your employment contract allows outside work, especially for public sector roles.
• Making Tax Digital: from April 2026, if your self-employed and property income (not salary) is over £50,000, you must keep digital records and send quarterly updates.

A second job instead?

A second employed job is taxed differently, through a second tax code. See why your second job is taxed so much. If your side business grows, see sole trader vs limited company.

Class 2 National Insurance

Self-employed people no longer pay compulsory Class 2 National Insurance. If your profits are above the small profits threshold, you get a State Pension qualifying year without paying it. Below that, you can choose to pay voluntary Class 2 to protect your record, though if your job already gives you a qualifying year through Class 1, you don't need to.

Paying through your tax code

If you owe less than £3,000 and file online by 30 December, HMRC can collect the tax through your PAYE code over the next tax year. Your take-home pay drops a little each month instead of you paying a lump sum in January. Tick the box on your return if you want this.

Figures for 2026/27 in England, Wales and Northern Ireland, with no expenses, student loan or other income. This is general information, not tax advice.