Tax and NI
Employed and self-employed: tax on a side business
Run a business next to a job and the salary takes the cheap slices of the tax system first; the side profit starts where the salary stops.
Someone earning a £32,000 salary who makes £8,000 of profit on the side owes HMRC £1,600 more for 2026/27 in England, Wales or Northern Ireland, all of it Income Tax at the 20 % basic rate, and keeps £6,400 of the profit. The Personal Allowance of £12,570 has already been used by the salary through the tax code, so the side profit is taxed from its first pound. Class 4 National Insurance, on the other hand, ignores the job: it is charged only on profit above £12,570, so this profit pays none, even though total income is well past that figure. Class 1 on the salary is handled by payroll as usual. You must register for Self Assessment once gross takings from the side business pass £1,000 in a tax year, and you can deduct that £1,000 allowance instead of real expenses when it is the better choice.
Tax on a side business next to a job
Extra to pay HMRC
£1,600
| Income Tax on the side profit | £1,600 |
| Class 4 | £0 |
| Kept from the side profit | £6,400 |
Figures checked by Radif Partners · Editorial policy · How we calculate
The salary goes first
GOV.UK is explicit that you can be employed and self-employed at the same time (GOV.UK, set up as a sole trader). For Income Tax, the two incomes are simply added together. In practice the job is taxed first, because PAYE gives you the Personal Allowance through your tax code, month by month. By the time HMRC looks at the side profit on your return, the allowance has gone and part of the basic band has been used. The side profit therefore starts at whatever rate your salary reached: 20 % for most employees, 40 % once total income passes £50,270 (GOV.UK, Income Tax rates).
This is the single biggest surprise for people starting a side business. A full-time sole trader with £8,000 of profit would pay no tax at all; an employee with the same side profit pays tax on every pound of it.
Two kinds of National Insurance, kept apart
National Insurance works the other way. Class 1 is deducted from wages by payroll, and Class 4 is charged on trading profit through Self Assessment, each on its own income (GOV.UK, self-employed National Insurance rates). Class 4 has its own lower limit of £12,570 that applies to the profit alone, so a side business making less than that pays no Class 4 whatever the salary. Above it, the rate is 6 %. Class 2 is no longer charged, and a job paying above the lower earnings limit already gives you the year on your record.
| Salary | Side profit | Income Tax on it | Class 4 | Extra bill | Share of profit |
|---|---|---|---|---|---|
| £20,000 | £6,000 | £1,200 | £0 | £1,200 | 20 % |
| £32,000 | £8,000 | £1,600 | £0 | £1,600 | 20 % |
| £32,000 | £15,000 | £3,000 | £146 | £3,146 | 21 % |
| £48,000 | £6,000 | £1,946 | £0 | £1,946 | 32.4 % |
| £60,000 | £12,000 | £4,800 | £0 | £4,800 | 40 % |
The last column is the share of each side pound to put aside. It is far higher than what the same profit would cost on its own, and it reaches 40 % when the salary is already in the higher-rate band.
Small side income and the trading allowance
The first £1,000 of gross trading income in a tax year is covered by the trading allowance (HMRC, tax-free allowances on trading income). If your takings stay at or under that figure, there is nothing to report and no need to register. Above it, you must register, and on the return you choose: deduct the allowance, or deduct real expenses, never both. A tutor taking £1,800 a year with £300 of costs is taxed on £800 by using the allowance, rather than £1,500 with real costs. The trading allowance calculator makes the comparison for any figures.
One exception catches people out: you cannot use the allowance on income from your employer, your spouse’s or civil partner’s employer, or a company or partnership you or someone connected to you controls. Extra work billed to your own employer gets no allowance, whatever its size.
Registering and filing
Once gross side takings pass £1,000, register for Self Assessment by 5 October after the end of the tax year in which you started. For a business started in 2026/27, that means 5 October 2027, with the return and payment due by 31 January 2028. The registration page lists the steps.
Employees have an extra option. If you file online by 30 December 2027, HMRC can collect the balance through your tax code instead of in one January payment (GOV.UK, Self Assessment deadlines).
Payments on account are less common for employees. They are not set if more than 80 % of your tax was taken at source, or if the Self Assessment bill is under £1,000. A £32,000 salary plus £4,000 of side profit produces a bill of £800, which triggers none. To see the whole calculation as HMRC lays it out, with dividends and PAYE, use the Self Assessment calculator.