Am I allowed to freelance whilst I am full-time employed?
A common question for many individuals who want to start offering freelance services whilst also maintaining their full-time employment is whether they are allowed to do so. And in short, the answer is yes.
Legally you are fully entitled to take on additional work on a freelance basis as long as it is not in breach of your employment contract and for most standard contracts you won’t be.
There are occasions, however, where you might be in breach. For instance, if you are providing the same service you do for your employer and you take on a client in the same industry (ie. a competitor) then this will likely be in breach of contract.
Another example would be if you were to carry out freelance work during your working hours for your full-time employer since this would mean that you are failing to meet your responsibilities.
To make sure that you are not breaking your contract terms and conditions it is best practise to inform your employer about your freelancing but remember this is not a legal requirement and if you’re not comfortable discussing this with your employer then just make sure that you read over your contract agreements and ensure that you are never in breach whilst taking on freelance client work.
What about taxes?
It is really common for people to have a full-time job whilst also being self-employed as a freelancer and HMRC know this which is why they make it possible to be both ‘employed’ and ‘self-employed’ at the same time.
With income tax, you are expected to pay appropriate to your tax bracket on all earnings made above the tax-free personal allowance of £12,500 on your employed salary and the profits of your freelance work.
You will not pay tax on the revenue from your freelance work, rather you will pay the tax on the profits. This means that resources needed to produce your revenue can have tax claimed back or not paid at all such as a laptop, software subscriptions, and travel.
Here’s an example for a full time employed and self-employed freelancer for the 2020/21 tax year…
When it comes to National Insurance it’s a little different.
If your self-employed profits are less than £6,475 then you do not pay national insurance other than the standard insurance you pay through your employer.
However, if you’re earning more than that in profits then you will pay a flat rate of £3.05 per week as Class 2 National Insurance and you must pay this through a direct debit after registering as self-employed through HMRC – which you can do so here.
If you are doing well for yourself and are taking in profits over £9,500 then you will also need to pay Class 4 national insurance tax which is charged at 9% for profits between £9,500 – £50,000, and 2% for profits over £50,000.
You will need to work out your profits and declare them on your Self Assessment tax return.
Here’s an example of how much national insurance you would have to pay for your freelance work (remember that you also still are paying national insurance on your full-time job through your employer automatically)…
Should I freelance on the side?
There are some fantastic benefits to taking on additional work as a freelancer whilst being fully employed. But there are indeed some downsides.
Benefits include increasing your income, diversifying your work, getting paid for your hobbies, and easing a transition to full-time self-employment.
Negatives include potentially being overworked, potential tax headaches if you’re not on top of your finances, and potentially being in breach of contract.
It is important to note, however, that all the negatives presented above can be easily mitigated by either taking on less client work, getting an accountant, and by being honest with your boss or by ensuring that you fully understand your employment contract.