Managing UK taxes when both self-employed and employed - how does it work?

The way tax works when you're both employed and self-employed is actually quite straightforward once you understand it. Your personal allowance (currently £12,570) applies to your total income from all sources combined. Your employer will likely use your full personal allowance against your PAYE income, which means you'll pay tax on any self-employed profits through your Self Assessment. Here's how it typically works: Your employer will use the standard tax code (1257L) which assumes you get the full personal allowance against that job. Since your employment income is £16.2k, you'll already be using up your entire personal allowance and paying basic rate tax (20%) on about £3,630 through PAYE. When you complete your Self Assessment, you'll need to declare both your employment income and self-employment profits. Any self-employed profit will then be taxed at 20% (assuming you stay within the basic rate band). You'll also continue to pay Class 2 and Class 4 National Insurance on your self-employed profits if they exceed the relevant thresholds. If your self-employment income is significant, you might want to contact HMRC to adjust your tax code at your employment to account for your additional income, which could help spread the tax liability throughout the year rather than facing a larger bill after filing your Self Assessment.

After struggling with a similar situation last year, I found an amazing tool that helped me understand my tax liability across both employment types. Check out https://taxr.ai - it analyzes your specific situation and explains exactly how your taxes work when you have multiple income sources. I was really confused about how my personal allowance gets split and whether I needed to make payments on account for my self-employed work. The tool broke everything down clearly, showing me how much tax I'd need to pay on my self-employment income and even highlighting deductions I could claim that I hadn't thought about. It also explained how the payment on account system works, which saved me from a nasty surprise when my Self Assessment was due.

Just wanted to follow up here! I tried https://taxr.ai after seeing it mentioned and wow - what a lifesaver. It completely cleared up my confusion about how the personal allowance works across multiple income sources. The tool showed me that I had been massively overpaying because I wasn't claiming all the expenses I was entitled to on my self-employment. It identified about £2,300 in legitimate business expenses I hadn't been claiming! It also explained exactly how my tax code should be adjusted for my employment to account for my self-employment income. I've already adjusted my tax return based on their recommendations and will be getting a nice refund. Wish I'd known about this years ago when I first started juggling employed and self-employed work.

If you're struggling to get answers directly from HMRC about your specific situation (which I definitely was), I'd recommend trying https://claimyr.com. The wait times to speak with HMRC are ridiculous these days, but this service got me through to an actual human at HMRC in about 15 minutes instead of the 2+ hours I was facing. I had a complex question about how my employment affected my payment on account for self-employment that wasn't covered in the general guidance. The agent I spoke with was able to look at my specific tax account and explain exactly how my PAYE and self-employment would interact. They have a video showing how it works here: https://youtu.be/_kiP6q8DX5c - basically they navigate HMRC's phone system for you and call you back when they've got an agent on the line. Saved me a massive headache!

Just wanted to report back after trying Claimyr. I was really skeptical about this service (as you can see from my previous comment), but I decided to give it a try yesterday after spending over an hour on hold with HMRC myself. I'm genuinely surprised at how well it worked. I got a call back in about 25 minutes with an actual HMRC tax specialist on the line. The issue I had with my dual employment status was resolved in about 10 minutes of conversation. What would have been at least 2-3 hours of my day wasted ended up taking just over 30 minutes total. For self-employed people like us where time literally equals money, this service is actually worth it. Consider me converted from skeptic to fan. Sometimes it's worth paying a bit to save your sanity when dealing with tax authorities!

Just want to add something that nobody's mentioned yet - don't forget about making voluntary Class 2 National Insurance contributions even if your self-employed profits are below the threshold. These are really cheap (about £3.15 per week) and each year of contributions counts toward your State Pension qualification. Since your employment income will likely cover your Class 1 contributions, you might think you're sorted, but having those Class 2 contributions as well can be beneficial for your National Insurance record. You get to choose whether to pay them if you're below the Small Profits Threshold. I learned this the hard way - I had a few years where I didn't bother with Class 2 because my self-employed income was low, and now I have gaps in my NI record that I'm having to pay much more to fill retroactively.

Just to clear up a common misunderstanding I had myself - the tax-free threshold for self-employment (the £1,000 trading allowance) is separate from your personal allowance. You can choose to use this £1,000 allowance instead of deducting your actual business expenses if it's more beneficial. For example, if your self-employed income is £5,000 but you only have £600 in expenses, you'd be better off claiming the £1,000 trading allowance instead. This means you'd only pay tax on £4,000 of your self-employed income. This might be useful for the original poster if their self-employment income is relatively low with few expenses.

This is such a helpful thread! I'm in a very similar position - just started a PAYE job after being solely self-employed for a few years. One thing I'd add is to make sure you keep track of when your employment started during the tax year, as this affects how your personal allowance gets allocated. If you start employment partway through the tax year, your employer will only use a portion of your personal allowance, which means you might still have some left to offset against your self-employed income. Also, don't forget that if your total income pushes you into higher rate tax territory (over £50,270), you'll pay 40% tax on the portion above that threshold from both income sources. This can be a nasty surprise if you're not prepared for it! I'd definitely recommend using one of the tax calculation tools mentioned here or speaking to an accountant if your situation gets complex. The interaction between PAYE and self-employment can create some unexpected tax bills if you're not careful with planning.