Employed and self employed at the same time

You can have a job and run a business at the same time. Your salary is taxed through PAYE and your business profits through Self Assessment, but both are added together to decide your tax bands, so side profits are often taxed at your highest marginal rate. You pay Class 1 National Insurance on the job and Class 4 on the profits, and the annual maximum in regulation 100 of the Social Security (Contributions) Regulations 2001 can cut the Class 4 down to 2% when your salary already reaches the upper limit.

Do you need to register if you already pay tax through your job?

Yes, once the side business is a trade and its gross income passes £1,000. GOV.UK’s guidance on working for yourself confirms that you can run a business and be employed at the same time, for example working for an employer during the day and running your own business in the evenings. PAYE only deals with the job, so the business has to be reported separately.

GOV.UK says you must send a tax return if you were a sole trader and earned more than £1,000 before expenses. Below that, the £1,000 trading allowance can cover the income, but it is not available for trading income from your own employer or your spouse’s or civil partner’s employer, or from a company or partnership you or someone connected to you controls. If you have not sent a return before, you must tell HMRC by 5 October after the end of the tax year; our guide to registering for Self Assessment explains the steps.

How is Income Tax worked out across both incomes?

For 2026 to 2027 GOV.UK gives the personal allowance as £12,570, basic rate at 20% up to £50,270 and higher rate at 40% up to £125,140 (rates differ in Scotland). There is one set of bands for the whole of your income. GOV.UK says 1257L is the code used for most people with one job, so your personal allowance and much of your basic rate band are normally used up by your salary through PAYE before the business is counted. The profits then sit on top.

That has three practical consequences:

A side business is often taxed at 40% from the first pound of profit if your salary is already above £50,270.
If total income goes over £100,000, the personal allowance is reduced by £1 for every £2 above that level, so the effective rate on profits in that band is much higher.
Payments on account can start. GOV.UK says you must make them unless last year’s Self Assessment bill was under £1,000 or more than 80% of your tax was collected outside Self Assessment, for example through your tax code. A growing side business soon tips you over both tests. See our page on payments on account.

If you owe less than £3,000 and file online by 30 December, GOV.UK says HMRC will collect the bill through your PAYE code unless you ask it not to. Our guide to coding out explains when that does and does not work.

Which National Insurance do you pay on each income?

National Insurance is charged separately on each source:

Income	Class	2026 to 2027 rates
Salary (category A)	Class 1 primary, deducted by the employer	8% on earnings from £12,570 to £50,270 a year, 2% above
Business profits	Class 4, collected through Self Assessment	6% on profits from £12,570 to £50,270, 2% above
Business profits of £7,105 or more	Class 2	Treated as paid, so nothing to pay

The thresholds apply to each source separately, so a person earning £30,000 from a job and £20,000 of profit pays Class 1 on salary above £12,570 and Class 4 on profit above £12,570. HMRC’s National Insurance Manual (NIM24001) notes that Class 4 does not count towards contributory benefits or the State Pension; your record is protected by Class 1 on the job and by Class 2 being treated as paid. More detail is in our guide to self employed National Insurance.

What is the annual maximum for National Insurance?

Without a limit, someone with a well paid job and a profitable business could pay the main rate twice. Regulation 100 of the Social Security (Contributions) Regulations 2001 caps the Class 4 bill for anyone liable to both Class 1 and Class 4. HMRC’s guidance at NIM24170 to NIM24178 sets out the steps. In outline, for 2026 to 2027:

Take the band between the lower and upper profits limits (£50,270 less £12,570 = £37,700) and multiply by 6%: £2,262.
Subtract the Class 1 you paid at the main 8% rate on all your jobs.
If a positive amount is left, that is the most Class 4 you pay at 6%; if nothing is left, no Class 4 is due at 6%.
Profits that are not covered by the 6% amount are charged at 2%, and any profits above £50,270 are always charged at 2%.

The effect is that everyone pays at least 2% Class 4 on profits above the lower limit, but nobody pays the 6% rate on top of a full 8% Class 1 bill. Since 6 April 2024 there is no Class 2 element in the calculation (NIM24151). Deferring Class 4 in advance is not possible from 2015 to 2016 onwards (NIM24004), and HMRC states at NIM24177 that where more Class 4 has been paid than regulation 100 requires, the excess is refunded. Separately, people with two or more jobs can apply on form CA72A to defer Class 1 on a second job; GOV.UK says HMRC must receive the 2026 to 2027 application by 14 February 2027, and that Class 4 cannot be deferred.

How does that work with real numbers?

Illustration only. Sam earns a salary of £60,000 and makes £20,000 profit from weekend photography in 2026 to 2027, in England.

Class 1: 8% of £37,700 = £3,016, plus 2% of £9,730 = £194.60.
Class 4 without the cap: 6% of £7,430 (profit above £12,570) = £445.80.
Annual maximum: £2,262 less £3,016 is negative, so no Class 4 at 6%. The whole £7,430 is charged at 2%: £148.60.
Income Tax: the salary already uses the personal allowance and basic rate band, so the £20,000 profit is taxed at 40%: £8,000.

If Sam’s salary were £20,000 instead, Class 1 would be £594.40, the cap would be £1,667.60, and his ordinary Class 4 bill would be well below it, so the normal 6% would apply. The maximum mostly helps employees earning near or above £50,270.

Can a loss in the business reduce tax on the salary?

Often, yes. HMRC’s helpsheet HS227 explains that a trading loss can be set against total income of the year of loss or the previous year, which includes employment income, so tax deducted through PAYE can be repaid. The relief is denied if the trade is not run on a commercial basis with a view to profit, and it can be limited if you spent less than 10 hours a week on average on the commercial activities of the trade. It also counts towards the cap on income tax reliefs, which HS227 gives as the higher of £50,000 and 25% of adjusted total income. A loss can always be carried forward against future profits of the same trade instead.

What else changes when you have both?

Student loans. GOV.UK says that if you are self employed and employed, repayments depend on your combined income for the year, with PAYE deductions credited. See student loan repayments through Self Assessment.
Making Tax Digital. Only self employment and property income count as qualifying income. GOV.UK sets thresholds of £50,000 for 2024 to 2025 (use from April 2026), £30,000 for 2025 to 2026 (from April 2027) and £20,000 for 2026 to 2027 (from April 2028). Salary does not count.

What are the common mistakes?

Assuming PAYE covers everything and not registering the business.
Claiming the trading allowance for work done for your own employer.
Budgeting for side profits at 20% when the salary already uses the basic rate band.
Overpaying Class 4 at 6% when the annual maximum limits it to 2%.
Forgetting that the first Self Assessment bill can include a payment on account, so it can be one and a half times the tax on the profits.

If HMRC opens a check into your return, tax investigation insurance pays your accountant’s fees. Solar Protect cover pays up to £100,000 with no excess; it never pays tax, interest or penalties. Read how our cover works or get a quote.

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Sources

Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 8 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.