03 July 2026
It is increasingly common for individuals to earn both employment (PAYE) and self‑employment income. HMRC allows this, but understanding the tax rules is essential.
How Income Is Taxed
Employment income is taxed through PAYE, with Income Tax and Class 1 National Insurance (NICs) deducted by your employer.
Self‑employment income is untaxed at source. You must report your income via an annual Self Assessment tax return.
HMRC combines both income sources to calculate your total tax liability. If your Personal Allowance is used up by your salary, self‑employed profits are taxed from the first pound earned.
Self Assessment Requirements
- You must file a tax return if self‑employed income exceeds £1,000
- The return includes PAYE income, self‑employment profits (minus allowable expenses), and other income
- The Trading Allowance (£1,000) may exempt small amounts of self‑employment income, but reporting may still be required if you must file a return anyway
“Paying Tax Twice” Myth
You do not pay tax twice. PAYE tax already deducted is credited against your total liability. However, National Insurance may apply separately to each income source.
National Insurance Contributions (2026/27)
Employees aged between 16 and State Pension age pay Class 1 NICs on their earnings. Contributions begin once earnings exceed £12,570 per annum.
Employees – Class 1 NICs:
- NICs are charged at 8% on earnings between £12,570 and £50,270
- Earnings above £50,270 are charged at 2%
Self‑employed – Class 4 and Class 2 NICs:
Self-employed individuals pay Class 4 NICs on taxable trading profits:
- 6% is payable on profits between £12,570 and £50,270
- 2% is payable on profits above £50,270
- Class 2: No longer mandatory; voluntary (£3.65/week) if profits below £7,105 to maintain benefit entitlement
Employment Status
Correctly identifying if someone is employed or self‑employed is essential. Indicators of employment include an obligation to offer and accept work, a clear employer–employee relationship, integration into the business, and minimal financial risk.
HMRC closely reviews status, and misclassification can lead to reclassification plus liability for unpaid tax and NICs.
Need Advice on PAYE, Self-Employment or Tax Planning?
At Morrissey Chartered Accountants, we help individuals and business owners navigate the complexities of dual income streams, Self Assessment, tax planning, and HMRC compliance.
If you would like tailored advice on your tax position or support with your tax return, contact our team today on 028 4461 7130 to discuss how we can help.
