Lots of people have a regular job (as an employee) and also run a side business. You might be working full-time and selling online at weekends, tutoring in the evenings, or running a small consultancy in your spare time.
There are no rules or regulations that stop you from working and running a business at the same time.
HMRC is not concerned with whether you have one job or several – only that every source of income is declared.
Where it gets more complicated is how the two systems interact, and whether your employment contract gives you the freedom to take on outside work.
Telling HMRC about your side business
If your total gross trading income is £1,000 or less in a tax year, you can usually make use of the trading allowance, and you don’t need to register for Self Assessment.
Once your trading income goes above £1,000 in a year, you must register for Self Assessment with HMRC and declare it.
You do this by signing up for Self Assessment. Your job continues as usual, with your employer deducting tax and National Insurance via PAYE. Your sole trader income is added on top when you complete your annual tax return.
If you miss the deadline, HMRC can charge a penalty. The key date is 5th October, following the end of the tax year in which you started trading. For example, if you began earning sole trader income in June 2025, you must register by 5th October 2026.
How the tax and National Insurance rules apply
The PAYE system deals with your employment income. Anything you make as a sole trader is taxed separately.
At the end of the year, HMRC looks at the two figures and works out how much extra tax and National Insurance you owe.
Employees pay Class 1 National Insurance through their employers’ payroll system.
Sole trader profits attract Class 4 contributions (a percentage of profits). These are in addition to your Class 1 payments. It can be a surprise to new traders who assume that paying NIC through their job “covers” everything – it does not.
Read more in ByteStart’s guide to NI for sole traders.
Watch your tax code
One of the first changes people notice is a different tax code on their payslip. Once HMRC realises you also have self-employed income, it sometimes adjusts your PAYE code to collect some of the extra tax during the year.
This can work in your favour, but it is not always accurate.
You might end up paying too much through your salary and reclaiming it later, or not enough and facing a bill when you file your return.
Codes such as BR (basic rate applied to all income) or K (used when you owe tax from other sources) are often used in these situations.
Always verify your code against your expected income and query it if it appears incorrect.
See GOV.UK: how tax codes work
What your employment contract says
Although HMRC has no objection to side businesses, your employer may have different policies regarding additional work activities.
Many contracts have clauses that:
Prohibit outside work without written consent
Restrict activity that competes with the employer’s business
Ban anything that could harm the employer’s reputation
Breaking these rules can lead to disciplinary action, even if you are paying the right tax. If you are unsure, ask HR or your line manager before you start.
The Working Time Regulations limit employees to an average of 48 hours per week in their employment (typically averaged over 17 weeks), unless they sign an opt-out.
However, these rules do not extend to self-employed activity.
Hours you spend on your sole trader business are outside the scope of the regulations, although your employment contract may still place its own restrictions on outside work.
Pensions and benefits
Being employed usually means you are enrolled in a workplace pension. That continues as usual.
You can also make separate contributions from your sole trader income, either into your workplace scheme (if the provider allows it) or into a personal pension.
These payments qualify for tax relief up to the annual allowance.
Statutory benefits are more complicated. Sick pay, holiday pay and statutory maternity pay only apply to your employment income.
If you fall ill or take time off from your business, there is no automatic safety net.
Sole traders may be able to claim Maternity Allowance, but not SMP. Some people cover the gap with income protection insurance.
Student loans and Child Benefit
Repayments on income-contingent student loans are based on your total income. If you are already repaying through PAYE, HMRC will check your tax return and calculate any additional amount due on your sole trader profits.
The same principle applies to the High Income Child Benefit Charge. All income streams are combined. For example:
Salary: £34,000
Sole trader profits: £8,000
Total: £42,000
This total is what determines student loan repayments and whether part of your Child Benefit is clawed back.
Insurance for your side business
An employer’s insurance policy only covers your work for them. It does not extend to your self-employed activities. If you deal with clients or the public, you should consider separate cover. The most common types are:
Public liability insurance – this protects your business from claims resulting from injuries to others or property damage.
Professional indemnity insurance – protects against claims if your professional advice is deemed negligent.
Employers’ liability insurance – this is a legal requirement for almost all businesses that employ staff.
Find out more in our insurance section.
Some examples of working + running a business
Example 1: An employee earns £35,000 through PAYE and makes £8,000 profit from selling online. The salary is taxed at source. The £8,000 profit is added on their tax return. HMRC charges extra income tax and Class 4 National Insurance on the profit at self assessment time.
Example 2: A nurse working for the NHS also teaches private first aid courses, earning £4,500 profit. Her hospital salary continues as usual. The training income must still be declared. She checks her contract to confirm it is allowed and arranges professional indemnity insurance for the private training work she does.
Example 3: An office worker earning £28,000 a year also runs a part-time consultancy, generating a £12,000 profit. PAYE covers the £28,000. The £12,000 is declared on the Self Assessment tax return. Because the combined income is £40,000, student loan repayments increase and National Insurance is due on the consultancy profit.