Lots of people feel nervous about taking the leap into self-employment - that’s why they often start out by doing some freelance work around their permanent job.

Going freelance on the side whilst you’re still in a permanent job gives you the chance to work on your new business, while retaining the safety net of a consistent paycheck. This does bring about its own set of tax implications, though.
 

Income tax

If you’re working as a sole trader freelancer, you’ll still need to register as self-employed with HMRC and pay any income tax you owe from your self-employed profits. Income tax is calculated on your total earnings, so you’ll have to pay tax on amounts above the personal allowance for your combined income from employment and sole trader profits.

It’s important to know that if your sole trader profits push your total earnings into a higher tax band, you’ll have to pay a higher tax rate.
 

National Insurance

The National Insurance you pay on your income from your employer won’t change, but it’ll be a bit different for your income from self-employed profits.

Depending on how much your side hustle is earning you, you’ll have to pay either Class 2 National Insurance (for profits exceeding £6,365) or both Class 2 and Class 4 National Insurance (for profits exceeding £8,632).
 

Expenses

One of the perks of going self-employed is that you get to offset your business expenses against your income. You’re only taxed on your self-employed profits.

There’s an expansive list of claimable expenses, which you can read more about in our sole trader and limited company articles.

Read our Freelance on the side: what tax do I pay? for more information on these tax brackets and some typical worked examples.