Can You Be Both Employed and Self-Employed at the Same Time? How Does It Affect National Insurance and Pensions?
- TBA
- Feb 25
- 5 min read
In the UK, many people hold a stable full-time job as an employee while using their spare time to develop a side hustle.
For example, they might work a normal day job and tutor in the evenings, run an e-commerce shop online at weekends, or even provide professional consulting services during their free time. The question then arises:
Can an individual be both an employed member of staff and a self-employed person?
And if so, will there be conflicts regarding tax returns, National Insurance, and pension contributions?
You can be both an employee and self-employed
From a legal and tax perspective, there are no regulations prohibiting you from being both an employee and a sole trader.
HMRC does not concern itself with how many jobs you have. Rather, they are concerned with whether all income is truthfully declared and taxed.
Therefore, if you have a formal job and are considering becoming self-employed, the real areas to pay attention to are the method of tax reporting, the types of tax and National Insurance to be paid, and whether your employment contract allows for additional work.
Check your employment contract before starting a side hustle
Although HMRC will not stop you from running a side business, your employer may not be entirely supportive.
Many employment contracts contain clauses regarding 'outside work', which may require individuals to obtain written permission before engaging in a side hustle, restrict employees from engaging in activities that compete with the employer’s business, or prohibit any behaviour that might damage the employer’s reputation.
If you are unsure whether your side hustle is permitted, the safest approach is to consult your HR department or line manager before starting.
Additionally, UK working time regulations usually stipulate that an employee’s average working hours must not exceed 48 hours per week (usually averaged over 17 weeks), unless they have voluntarily signed an opt-out agreement.
However, this limit applies only to working hours under an employment relationship and does not include self-employed activities. This means the time an individual spends running a side hustle falls outside these regulatory limits.
Declaring side hustle income
Once you have determined that you can proceed with a side hustle, whether you need to register with HMRC and file taxes mainly depends on the income level of the side business.
If your total gross income within a tax year does not exceed £1,000, you can usually use the 'trading allowance'. In this case, you generally do not need to register for Self Assessment. However, once the total income exceeds the £1,000 threshold, you must register for Self Assessment and declare your self-employment income each tax year.
After registration is complete, your main job will not be affected. Your employer will still deduct income tax and National Insurance through the PAYE system. Your personal self-employment income, however, will be combined with your salary income when you complete your tax return each year.
Particular attention must be paid to registration and payment deadlines. You need to complete registration by 5 October following the end of the tax year in which you started generating self-employment income.
For example, if you start receiving self-employment income in June 2025, you must complete registration by 5 October 2026 and pay the relevant tax by 31 January 2027. If you miss these dates, HMRC may issue a penalty.
How tax and National Insurance apply
Although salary income and self-employment income are ultimately combined for calculation, their taxation methods differ—full-time salary income is processed automatically through the PAYE system, with tax and National Insurance deducted directly when you are paid. Income you earn as a sole trader, however, must be declared separately and is taxed separately.
After the tax year ends, HMRC will combine your two types of income to recalculate the income tax and National Insurance due for the whole year. If additional tax or National Insurance needs to be paid, this will be reflected during the Self Assessment calculation.
It is worth noting that sole traders may also need to pay Class 4 NICs.
This is an additional cost on top of the National Insurance already paid as an employee, usually calculated as a percentage of profits. Many people starting a side hustle mistakenly believe that 'since I already pay National Insurance at work, I don’t need to pay it for my side hustle', but this is not the case.
Watch out for changes to your tax code
Many people find that the first change after starting a side hustle is an adjustment to the tax code on their payslip.
After completing a Self Assessment registration for self-employment, HMRC sometimes adjusts the PAYE tax code to collect a portion of the estimated tax due from your salary in advance. This method can sometimes help spread the tax burden, but it is not always accurate. in some cases, you may overpay tax through your salary and have to claim a refund later; alternatively, you may underpay and have to make a lump-sum payment when filing your tax return.
In such situations, common tax codes include:
BR tax code: All income is taxed at the basic rate.
K tax code: Used to recover tax owed from other income sources.
Regardless of how your tax code changes, it is recommended that you regularly check whether your tax code matches your actual income situation. If in doubt, you should contact HMRC promptly.
Impact on pensions and benefits
As an employee, workplace pension schemes usually operate as normal, with both your employer and yourself continuing to contribute via PAYE as per regulations.
At the same time, individuals can make additional pension contributions using self-employment income. Relevant contributions to your chosen workplace and personal pensions can enjoy tax relief within the annual allowance.
Regarding benefits, the situation is somewhat more complex. Sick pay, paid annual leave, and statutory maternity pay apply only to employment income. If an individual cannot continue running their side hustle due to illness or taking a break, there is no automatic safety net.
Furthermore, sole traders can usually apply for Maternity Allowance (MA), but cannot receive Statutory Maternity Pay (SMP). Therefore, some people choose to purchase income protection insurance to mitigate risks.
Some advice from TB Accountants
It is entirely feasible to run a self-employed side hustle while working a job, provided you truly understand the rules, comply with your employment contract, truthfully declare all income, and plan your overall tax affairs in advance.
Only on a compliant foundation can a side hustle become a robust channel for increased income rather than a future risk.
It is particularly important to note that whether it is for income-based student loan repayments or the High Income Child Benefit Charge, HMRC calculates these based on total income, not just salary income.
Even if you are already making repayments through the PAYE system, you may still owe an additional amount due to self-employment profits after filing your tax return. This also means that as long as there is side hustle income, it must be incorporated into your overall financial and tax planning, rather than looking at salary levels on the surface alone.
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