Employed and self-employed tax and National Insurance

It's possible to be employed and self-employed at the same time. This could apply to you if, for example, you work for an employer in the week and run your own business at weekends. You pay tax and National Insurance contributions on your employment and self-employment income in different ways.

On this page:

Being both employed and self-employed

It's possible to be both employed and self-employed at the same time. Many people work for an employer and also run their own business. They might do things like:

  • work in a shop during the day and run their own Internet business in the evenings
  • work as a lecturer at a college as well as doing freelance writing and consultancy

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Paying Income Tax and National Insurance contributions on both jobs

If you earn income from both employment and self-employment then you pay any Income Tax and National Insurance contributions due separately and in different ways.

The total amount of tax and National Insurance contributions you pay is based on:

  • your combined income from both jobs - or all your jobs if you have more than two
  • any allowances and reliefs you get
  • your profits from self-employment

Employment income - tax and National Insurance contributions

If you work as an employee you pay any Income Tax and Class 1 National Insurance contributions due through PAYE (Pay As You Earn). Your employer deducts these from your pay before you get it.

You can find out more about paying tax and National Insurance contributions on employment income and how to make sure you don't overpay Class 1 National Insurance contributions by following the link below.

Employee tax and National Insurance

Self-employment income - tax and National Insurance contributions

If you have any income from self-employment it's your responsibility to pay any Income Tax and National Insurance contributions due. Depending on how much you earn from self-employment you may have to pay Class 2 and Class 4 National Insurance contributions.

You pay Class 2 National Insurance contributions at a flat rate. From April 2011, your Class 2 National Insurance contributions payments will become due on 31 January and 31 July, the same as a Self Assessment tax bill. You pay Class 2 National Insurance contributions either monthly or six monthly by Direct Debit.

Income Tax and Class 4 National Insurance contributions are based on your profits from self-employment. You have to fill in a Self Assessment tax return each year so that HM Revenue & Customs (HMRC) can work out how much tax and Class 4 National Insurance is due.

When you fill in your tax return you should use the Employment pages to tell HMRC about any employment income you have and any tax deducted from it. This will give a full picture of your total earnings from both employment and self-employment. The example in the section below will help you understand how HMRC uses the information on your tax return to work out your tax.

You can find out more about paying tax and National Insurance contributions on profits from self-employment by following the link below.

Paying HMRC

Self-employed tax and National Insurance

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How your overall tax and National Insurance is worked out

HMRC uses the information on your tax return about your employment and self-employment income to work out your tax and National Insurance.

Example

Louise works for a plumbing firm and earned £18,000 from this employment in the tax year 2013 to 2014. Her employer deducted tax and Class 1 National Insurance contributions from her pay through PAYE.

She also worked as a self-employed plumber in the evenings and at weekends. Her profits from self-employment were £9,000 for the tax year.

Louise paid Income Tax of £1,712 on her employment earnings. Her personal tax-free allowance for the year was £9440, so she paid tax at 20% on £8,560 (£18,000 - £9,440 = £8,560), which is £1,712

She paid Class 1 National Insurance contributions of £1,230.24 on her employment earnings. The 'primary earnings threshold' for paying Class 1 National Insurance is 52 weeks x £149 a week = £7,748, so she paid 12% on £10,252 (£18,000 - £7,748 = £10,252), which is £1,230.24

She paid Class 2 National Insurance contributions as a self-employed earner at the flat rate of £2.70 a week. 52 weeks at £2.70 a week is £140.40.

She has to pay £1,800 in Income Tax on her profits from self-employment. Her tax-free personal allowance was used up when working out the tax on her employment earnings, so all her profits (£9,000) are taxed at 20%.

She has to pay Class 4 National Insurance contributions of £112.05 on her profits from self-employment. The 'lower profits limit' for paying Class 4 National Insurance is £7,755, so she has to pay 9% on £1,245 (£9,000 - £7,755 = £1,245), which is £112.05.

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Making sure you don't overpay self-employment National Insurance contributions

If you expect to be both employed and self-employed you may be able to 'defer' some of your Class 2 and/or Class 4 National Insurance contributions. You'll pay what's due after the end of the tax year when the actual amount has been worked out. Doing this will make sure you don't pay too much National Insurance on your self-employment income.

When you can apply to defer Class 2 National Insurance contributions

You may be able to defer your Class 2 National Insurance contributions if you expect to pay:

  • both Class 1 and Class 2 contributions in a tax year
  • Class 1 contributions on weekly employment earnings of at least £805 for the whole tax year (2014 to 2015 rate)

When you can apply to defer Class 4 National Insurance contributions

You may be able to defer your Class 4 National Insurance contributions if you can show that you're likely to pay too much in Class 1, Class 2 and Class 4 contributions.

But even if you do defer your Class 4 contributions, you'll still have to pay them at the rate of 2% on any profits over £7,956 (the lower profits limit for 2014 to 2015).

When to make your deferment application

You should apply to defer your contributions before the start of the tax year for which you want to defer. So if you wanted to defer contributions for the tax year 2014 to 2015 you should apply before 6 April 2014.

If you apply late HMRC will accept your application until the end of the tax year. But if they receive it after the end of the tax year for which you want to defer contributions they will only consider letting you defer Class 4 contributions - and then only if you haven't already paid them in full or if they're under enquiry.

You have to re-apply for each tax year that you want to defer contributions.

How to apply

You can apply to defer your contributions by filling in and returning form CA72B Application for deferment of payment of Class 2 and/or Class 4 National Insurance contributions.

Alternatively you can write to HMRC at:
National Insurance Contributions & Employer Office
Deferment Services
Longbenton
Newcastle upon Tyne
NE98 1ZZ

Go to form CA72B Application for deferment of payment of Class 2 and/or Class 4 National Insurance contributions.

Check the current National Insurance rates and thresholds

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More useful links

Tax when you start, leave or retire from work

Paying tax when you're working

Claiming back tax if you've overpaid through your job

Claiming back overpaid National Insurance contributions

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