Tax and NI as Self Employed and Employed

Understanding tax and National Insurance (NI) can be complicated when you are both self employed and employed. It's important to know the basics to ensure you meet your obligations. When it comes to income tax, all of your income from various sources is aggregated, regardless of whether it's from employment or self-employment. National Insurance, on the other hand, is charged separately for each source. It's collected differently for employment and self-employment income. Additionally, self-assessment is crucial for reporting all sources of income and tax deductions. By understanding these key points, you can navigate the complexities of tax and NI as a self employed and employed individual.

Income Tax For the Self Employed and Employed

Income Tax is charged on the total income you earn, regardless of its source. This means that both your earnings from employment and your self-employment income are combined to calculate your tax liability.

If you have multiple sources of income, such as employment, rental income, bank interest, and self-employment income, all of these need to be aggregated to determine your total taxable income. However, there are special tax rates applicable to dividends and bank interest within the Income Tax charge.

The current tax rates for the 2024/25 tax year are as follows:

- 0% - Personal Allowance up to £12,570


- 20% - Basic Rate Band £12,570 to £50,270


- 40% - Higher Rate Band £50,270 to £125,140


- 45% - Additional Rate Band over £125,140

It's important to note that the Personal Allowance of £12,570 is reduced on incomes over £100,000, with a tapered deduction of £1 for every £2 of income over £100,000, resulting in a 60% marginal tax rate.

If you are employed, Income Tax may be deducted from your payslip under the Pay As You Earn (PAYE) system. The amount deducted will depend on your Tax Code, which determines how much tax you pay. However, if you are self employed and employed as well as in Self Assessment, the Tax Code becomes less important, as your tax liability will be calculated on your Self Assessment tax return.

National Insurance For the Self Employed and Employed

Class 1 National Insurance


Class 1 National Insurance (NI) is paid on earnings from employment and is collected automatically through the PAYE system. The amount of Class 1 NI deducted from your pay will depend on your earnings and the NI thresholds for the tax year.


Class 4 National Insurance


Class 4 National Insurance (NI) is paid on profits from self-employment and is calculated and collected through the Self Assessment tax return. When completing your Self Assessment, you will need to calculate the amount of Class 4 NI you owe based on your self-employment profits.


Class 2 National Insurance


Class 2 National Insurance (NI) is a voluntary payment made by self-employed individuals with low profits. Paying Class 2 NI helps maintain access to the State Pension. If your self-employment profits are below the Class 2 NI threshold, you may choose to make voluntary payments to protect your State Pension entitlement.


Class 3 National Insurance


Class 3 National Insurance (NI) is another voluntary payment made by individuals who are not paying NI through other sources but still want to maintain access to the State Pension. Class 3 NI contributions are used to fill gaps in your NI record and ensure that you are eligible for the State Pension.

Self Assessment Tax

Self Assessment is the process of reporting your income and paying any tax due to HM Revenue and Customs (HMRC). If you are both employed and self employed, you will need to include all sources of income on your Self Assessment tax return.





When completing your Self Assessment, you must enter all relevant income sources, including:

- Business profits from self-employment


- Earnings from employment (if you have multiple jobs, use a separate employment supplement for each job)


- Rental income


- Savings income (such as bank interest and dividends)


- Pension payments or income


- Capital gains

It's important to also enter any tax deducted at source, as this will be offset against your final tax liability. In cases where you have both employed and self employed income, the tax liability is calculated based on the total income from all sources.

Tax Code

The Tax Code is a method of collecting tax accurately for taxpayers who are outside of Self Assessment, such as employed individuals. If you are in Self Assessment, the Tax Code becomes less important, as your tax liability will be calculated on your Self Assessment tax return. However, incorrect Tax Codes are quite common when individuals have multiple income streams. If you are in Self Assessment, there's no need to worry, as any discrepancies in the Tax Code will be automatically resolved through the Self Assessment process.
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