Can I start a limited company while I’m employed?

Starting a limited company doesn’t mean quitting your day job. Whether you’re freelancing in the evenings or building a business on the weekend, it’s possible to do both.

But before you go full steam ahead, there are a few legal, financial and practical things worth checking off first. To help you stay on the right side of the rules (and your employer), we’ll break down what to look out for and how we can help. 🙌

Is it legal to start a limited company whilst employed?

Yes! There’s no law stopping you from starting a limited company while also working a 9 – 5. In the eyes of HMRC, you’re allowed to earn income from more than one source and you can be both an employee and a company director at the same time.

That said, just because it’s legal doesn’t mean your employer will automatically be OK with it. Some contracts include rules around second jobs, so it’s important to read the fine print. 📄

Can I be employed and run a business at the same time?

You can even be the director of a limited company and also work a second job. Just make sure:

• Your business doesn’t compete with your employer’s. 🥊
• You’re not using your employer’s time or resources. ⏱️
• You’re open with your employer (if your contract requires it). 🗣️

What should I check in my employment contract? 

Before you register a new company with Companies House, double-check your contract for:

• Non-compete clauses: these can stop you from working in the same industry or targeting the same clients.
• Exclusivity clauses: sometimes used in full-time contracts to prevent second jobs altogether. 
• Disclosure or approval requirements: you might need to get permission before starting any other paid work.

Heads up: certain industries (especially finance, law or the public sector) tend to have stricter rules. So, if you’re in one of those, checking your contract isn’t just a formality. It’s a must. ✅

Should I start a limited company or register as a sole trader?

When you’re starting out, one of the first decisions you’ll need to make is how to set up your business legally. The two most common options? Registering as a sole trader or starting a limited company. 

If you’re just testing the waters, registering as a sole trader might be the easier option. But there are good reasons why you might prefer starting a limited company instead.

When a limited company might be better:

• You’re expecting to earn more than £30k-£40k. 📈
• You want limited liability (your personal assets are protected).
• You want your business to look more established or professional. 👔

When sole trader status might be better:

• You’re earning less than £30k or it’s just a side gig for now.
• You want simple admin and fewer ongoing responsibilities. 🧾
• You’re just trying something out and not sure how long you’ll stick with it.

If you’re unsure which path is best, it’s worth considering the differences carefully to decide what fits your situation. ⚖️

Tax implications of starting a limited company while employed

Here’s where it gets a little more interesting. When you’re employed, your employer deducts Income Tax and National Insurance automatically through PAYE, meaning you don’t have to worry about the details.

But when you start a limited company, you’re stepping into director territory. This means your company is legally separate from you and becomes its own tax-paying entity. 💸 

How company tax works

Your limited company is legally separate from you. It pays Corporation Tax on its profits: 

You can deduct a wide range of business costs, helping to reduce your taxable profits and, ultimately, the amount of Corporation Tax you pay. Here are some examples of what you can claim:

• Equipment and supplies: this includes anything you need to run your business, from laptops to office furniture. 🖨️
• Software subscriptions: any tools or software you use for your business, such as accounting software or design programs are deductible.
• Office space: if you work from home, you can claim a portion of your household expenses, such as rent, utilities and the internet. 🏠
• Travel and vehicle costs: if you use your car for business purposes, you can deduct travel costs like fuel, insurance and maintenance.

Good bookkeeping is key! The better your records, the easier it is to track expenses and reduce your Corporation Tax bill. 

How personal tax works

The moment you take money out of your company, you may need to pay personal tax on it. There are a couple of common ways:

• Salary – this is taxed through PAYE like any normal job.  💼
• Dividends – you’ll pay Dividend Tax if you go over your allowance. 

Keep in mind, if you earn income through both salary and dividends, you’ll need to report everything via a Self Assessment tax return to ensure you’re paying the right amount of tax.

Do you pay more tax if you have two jobs?

Not automatically, but your total income might push you into a higher tax band. If your total earnings go over the threshold for higher-rate tax, you’ll pay more on that portion.

Is it the right move for you?

Starting a limited company while employed lets you build something new without sacrificing the security of your day job. You’ll need to register with Companies House, choose a name and appoint a director, plus other legal steps. It does come with extra admin, responsibility and the risk of higher tax bills if you’re not organised. But if you’re in it for the long haul, the benefits can outweigh the hassle.