If you’re considering topping up your monthly salary with some out of hours freelance work, it’s worth noting that there are a few implications in doing so. To help this blog highlights what you need to know and what you should do to ensure you remain compliant.
Firstly, here are some facts surrounding tax and national insurance for people who are either employed or self-employed.
Paying Tax and N.I when Employed
Employees pay income tax and class 1 National Insurance via their PAYE tax code. All deductions are typically shown on a payslip and employers have the responsibility of managing and making this payment to HMRC. The employee receives their net pay and will not need to complete a self assessment tax return unless they have additional benefits/income.
Paying Tax and N.I when Self-employed
Those who are self-employed are fully responsible for their own tax and national insurance contributions. This is calculated via the Self Assessment system and determined by the profit you make for tax year in question. If you make a profit above the threshold you will need to be aware of Payments on Account for the following tax year. Tax returns must be submitted before the annual Jan 31st deadline along with any tax owed for the previous tax year.
How is your tax and National Insurance calculated if you are self-employed and employed?
If you are employed and self-employed at the same time, you will still need to complete and submit a self assessment tax return and declare all earnings for the tax year. Self assessment calculates your tax and N.I liability on the basis of what you’ve earned and the tax you’ve paid already – therefore you will not be taxed twice.
For more further help and advice with anything relating to Employment and Self Employment, ask a question via the Accountants Forum.