If you have ever disregarded what looks like a part-time dream job solely on the basis that it is PAYE, you might want to reconsider, especially if freelance jobs in your area of expertise have been far and few between. Others may consider taking on a part-time role to contribute or top up their personal private pension (SIPP), especially if nearing retirement.
However, when a freelancer in the UK takes on a part-time PAYE (Pay As You Earn) job while also continuing to freelance, they need to consider several aspects related to tax, National Insurance, and administration. Here’s a breakdown:
Tax implications
Aggregated income: HMRC considers all your income sources together when calculating your Income Tax liability. This means your earnings from your PAYE job and your self-employment are added up.
Personal allowance: You only get one Personal Allowance (the amount you can earn tax-free, which is £12,570 for the 2024/25 tax year). HMRC will usually allocate this allowance against your main PAYE job. If your combined income exceeds the Personal Allowance, you’ll pay tax on the remainder. For more details, see Income Tax rates and Personal Allowances or Rates and thresholds for employers 2024 to 2025.
Tax brackets: Your combined income could push you into a higher tax bracket. For example, if your PAYE income plus your freelance profits push you over the basic rate threshold (£50,270 for 2024/25), your freelance income (and potentially some of your PAYE income) will be taxed at the higher rate (40%). Information on tax bands can be found in Freelance and Self-Employed Taxes in the UK or How To Pay Tax On Your Freelance Work In The UK.
Self-assessment tax return: You must register for Self Assessment with HMRC if your self-employed income (gross, before expenses) is over £1,000 in a tax year. Even if you’re already paying tax through PAYE, you’ll need to declare both your employed income (from your P60) and your self-employed income and expenses on your Self Assessment tax return. Refer to How To Pay Tax On Your Freelance Work In The UK and How much tax do freelancers pay in the UK?.
Tax payments:
PAYE: Tax for your part-time job will be deducted automatically by your employer through PAYE.
Self-employment: You’ll pay Income Tax and National Insurance on your self-employed profits through your Self Assessment. This is typically due by 31st January following the end of the tax year (which runs from 6th April to 5th April). You might also need to make ‘Payments on Account’ for the following tax year if your tax bill is over a certain amount. Key dates can be found in Key Self-Employment Dates & Self Assessment Deadlines and Tax return deadlines.
Trading allowance: You have a £1,000 tax-free trading allowance for self-employment. If your freelance income is below this, you may not need to declare it to HMRC or file a Self Assessment, unless you choose to deduct specific business expenses instead. If your expenses are higher than £1,000, it’s generally better to claim the actual expenses. This is explained in How To Pay Tax On Your Freelance Work In The UK and How much tax do freelancers pay in the UK?.
National Insurance (NI) Contributions
Class 1 NI (PAYE): Your employer will deduct Class 1 National Insurance contributions from your wages for your part-time job.
Class 2 & Class 4 NI (Self-Employment):
Class 2 NI: For the 2024/25 tax year, Class 2 NI contributions are generally treated as having been paid if your self-employed profits are £6,725 or more. If your profits are less than this, you can choose to pay voluntary Class 2 contributions to protect your National Insurance record (which affects your entitlement to benefits like the State Pension).
Class 4 NI: You’ll pay Class 4 National Insurance on your self-employed profits if they are £12,570 or more. This is calculated and paid through your Self Assessment.
Combined contributions: HMRC will take into account your Class 1 contributions from your employed job when assessing your overall National Insurance liability from self-employment, to ensure you don’t overpay. For details on self-employed NI rates, refer to Self-employed National Insurance rates – GOV.UK and Tax and NI when you are both Self Employed and Employed.
Admin and record keeping
Register for self assessment: If you haven’t already, you must register as self-employed with HMRC and for Self Assessment by 5th October in your second tax year of self-employment. See Key Self-Employment Dates & Self Assessment Deadlines for more information.
Keep accurate records: It’s so important to keep meticulous records for both your PAYE income (payslips, P60) and your freelance business (all income, invoices, and allowable expenses). This will make completing your Self Assessment tax return much easier and help you ensure you’re claiming all eligible deductions.
Allowable expenses: As a freelancer, you can offset “allowable expenses” against your self-employed income to reduce your taxable profit. These can include:
- Office costs (e.g., stationery, phone, broadband)
- Travel costs (e.g., fuel, public transport for business trips, but not commuting to your office)
- Training courses directly related to your freelance work
- Marketing and advertising
- Professional and financial services (e.g., accountancy fees, professional indemnity insurance)
- If you work from home, a proportion of household bills (e.g., heating, electricity, council tax, mortgage interest/rent). Detailed lists of allowable expenses are available in Expenses if you’re self-employed: Overview – GOV.UK and Tax deductions UK: Allowable expenses you can claim if you’re self-employed – Sage.
Tax Code for PAYE Job: HMRC should automatically adjust your tax code for your PAYE job to account for your self-employment income, to try and collect the right amount of tax throughout the year. However, it’s vital to check your payslips and your HMRC online account to ensure your tax code is correct. If it’s wrong, you could end up underpaying or overpaying tax. This is touched upon in Tax and NI when you are both Self Employed and Employed.
Payments on Account: If your Self Assessment tax bill is over £1,000, you’ll generally be required to make two ‘Payments on Account’ for the following tax year: one by 31st January and another by 31st July. This helps spread your tax payments. Information on payments on account can be found in Key Self-Employment Dates & Self Assessment Deadlines.
What else is there to consider?
Mortgages and lending: Lenders may view your combined income differently. Self-employed income often requires a longer history to be considered stable for mortgage applications. Some freelancers have been known to put their freelance careers on hold and take on a salaried full-time job when they know they will be applying for a mortgage. This is a big decision and should be made by considering all factors.
Benefits: Your combined income might affect your eligibility for certain benefits, so it’s worth checking if this applies to your situation.
Time management: Juggling both a part-time job and freelancing requires excellent time management and organisation to ensure both commitments are met.
Professional advice: It’s highly recommended to consult with an accountant or tax advisor who specialises in self-employment. They can help you understand your specific tax obligations, ensure you’re claiming all eligible expenses, and assist with your Self Assessment tax return.
By carefully considering all these factors, a freelancer can fill in those quiet periods and manage their finances and tax obligations when taking on a part-time PAYE job. Plus, it’s one more job to add to your portfolio and, in those quiet periods, peace of mind.
