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As an employee, your employer calculates and deducts Income Tax and National Insurance contributions for you.
But because you’ve earned over £1,000 from self-employment, you need to submit a Self Assessment tax return to pay Income Tax and National Insurance on your earnings.
These are all deducted from your salary by your employer every month.
You pay no Income Tax on the first ÂŁ12,570 that you make.
You pay ÂŁ5,486 (20%) on your salary between ÂŁ12,570 and ÂŁ40,000.
You pay no NI contributions on the first ÂŁ12,570 that you make.
You payÂŁ2,194 (8%) on your salary between ÂŁ12,570 and ÂŁ27,430
That’s not all. Your employer is also required to pay separate NI contributions, but these won’t come out of your wages. In your case they would need to pay an extra ÂŁ3,785 – you should see these on your payslip.
You will need to submit a Self Assessment tax return and pay these taxes and contributions yourself. The deadline is January 31st of the following year.
You pay ÂŁ2,054 (20%) on your self-employment income between ÂŁ0 and ÂŁ10,270.
You pay ÂŁ7,092 (40%) on your self-employment income between ÂŁ10,270 and ÂŁ28,000.
You will also have to pay ÂŁ616 (6%) on ÂŁ10,270 of your self-employment income.
You will have to pay an additional ÂŁ355 (2%) on another ÂŁ17,730 of your self-employment income.
You need to save
to pay your ÂŁ10,116.80 tax bill by 31/1/2026 which is in 666 days
Get an accredited accountant to sort your employed (PAYE) and self-employed income and file your Self Assessment tax return straight to HMRC.
Letting the professionals handle it makes the whole process stress-free!
When it comes to tax, your employment status is important. When you’re employed i.e. you work for a company on a permanent basis, you’re taxed on a system known as Pay As You Earn (PAYE). This means that the Income Tax and National Insurance you owe is deducted from your wages by your employer before you’re paid. When you’re self-employed, the system is different. You don’t have an employer to deduct the taxes you owe automatically so the onus is on you to sort it yourself. You declare your untaxed income and pay tax via a tax return.Â
But where does that leave those who are employed and have freelance commitments on the side, or even their own side business? Through the eyes of HMRC, these people are seen as being both employed and self-employed. Put simply, you’re taxed both automatically, and manually via a tax return.Â
Not exactly. Take a look at our blog about the tax implications of side hustles to learn more about it.Â
Essentially, having a side hustle won’t affect the way you’re taxed as such. You won’t be taxed at a higher rate. Similar to earning money from rental income outside your employment, all of your earnings are added together at the end of the tax year. You’re taxed at a rate that’s based on the total amount. Take a look at the current tax rates below:
| Income | Tax rate | |
| Up to ÂŁ12,570 | 0% | Personal allowance |
| ÂŁ12,571 to ÂŁ50,270 | 20% | Basic rate |
| ÂŁ50,271 to ÂŁ125,140 | 40% | Higher rate |
| over ÂŁ125,141 | 45% | Additional rate |
It couldn’t be more simple. Just input your gross salary (what you’re paid before tax is deducted) and the money you make from your side hustle. Anything that you’ve spent on your business, for example buying a table to use as a stall at a market, you deduct from your overall earnings. This means you’re only taxed on your profits. These spends are known as expenses. Add any expenses to the box, “Self-employment expenses”.
Be aware that if your expenses are less than £1,000 in the tax year, we’ll automatically deduct the Trading Allowance instead in your calculations. This is an allowance that means the first £1,000 of your self-employed income is tax-free. Check out the articles below to read more about the trading allowance.
Now that you know everything there is to know about employed and self-employed tax, you’re ready to delve deeper. (And that’s what you were hoping for, right?) These are our three most popular articles for our TaxScouters who are running side hustles. Want to work out your take home pay instead? Check out our salary after tax calculator.
Or see our Guides, Calculators or Taxopedia
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