Self-employed part-time – what do I need to know?

Part-time self-em­ploy­ment is a popular option, and for good reason. En­ter­prises which begin as part-time before becoming full-time tend to last longer. If you want to set up your own business on a part-time basis, there is a lot that needs to be taken into con­sid­er­a­tion.

You have a good idea for your own business, but you don’t really know whether the concept will be suc­cess­ful. Maybe you expect a longer build-up phase, or you don’t want to give up your main career. In any of these scenarios, part-time self-em­ploy­ment is a good option. You remain in an em­ploy­ment re­la­tion­ship, but still start your own business on the side. In summary, these are the benefits offered by starting out your self-employed business on a part-time basis: 

Maybe you’re unsure whether or not your business idea is solid. If you start it off as a side gig, you can test out your business concept with a lower risk level. Does the business work the way you planned? Do you get enough customers? You still have the op­por­tun­ity to make changes to the business model if necessary. You have time to learn and prepare for full-time self-em­ploy­ment.

Par­tic­u­larly in the early stages of self-em­ploy­ment, a regular income offers financial security. Depending on the desired activity, setting up a business can initially require high in­vest­ments. The more you can borrow from your current income, the less dependent you are on savings and bank loans. In addition, during the start-up phase, you should expect your income to grow gradually.

It is also easier to bridge dry spells if you are only part-time self-employed. In addition, there is always the pos­sib­il­ity that a company will fail. If you have another source of income, this setback is easier to cope with.

So, you want to be self-employed but don’t know where to start? In principle, there are no re­stric­tions for part-time self-em­ploy­ment. You can work doing whatever you want (as long as you fulfil the con­di­tions of a possible pro­fes­sion­al code), and you can earn as much as you want. In practice, however, certain rules and re­stric­tions must be observed. These include:

• Employees should always consult with their employer before beginning a self-employed side gig
• National insurance con­tri­bu­tions need to be clarified
• Secondary income can have an impact on social benefits

Your primary oc­cu­pa­tion may affect your part-time self-em­ploy­ment (if you’re employed, a student, un­em­ployed) side gig. In any case, you should make sure you are thor­oughly informed on what needs to be taken into account before you begin working part-time on your side job with regards to taxation and national insurance.

Otherwise, the same rules apply to part-time self-employed workers as to other self-employed:

• You need to register your business with your Companies House
• You also need to register as self-employed with the Her Majesty’s Revenue & Customs (HMRC)

How you set yourself up for in­de­pend­ent work depends strongly on what you want to do. Maybe you have an exciting business idea or you want to turn a hobby into a pro­fes­sion. In any case, you need to consider how much money and time you want to invest, what for, how much you want to earn in return, and how long it is likely to take you to reach your goal. In short: you need a concept for your planned part-time side job (a “business plan”).

This kind of concept, or plan, is important. You must organise your thoughts and recognise whether and under what cir­cum­stances your planned part-time work is worth­while and what you have to do in order to achieve your goals. The plan will also help you to identify the risks you are taking with your side gig. How much capital seed do you need? Can you raise it yourself or do you need a bank loan? You may need to rent and furnish an office or workshop. The other extreme would be that in your spare time you are a web designer or copy­writer on your home computer. Then you would not need any in­vest­ments and you would hardly have any financial risk.

No matter how you want to set up your side gig, here are some important steps you should take to get started:

Check in advance whether you need a permit or special qual­i­fic­a­tion to do your part-time self-employed work, and if so, which ones. Do you want to pursue a pro­fes­sion that requires a permit? There are licensing re­quire­ments for a wide variety of jobs, including:

• Property developer
• Financial services
• Driving in­struct­or
• Debt col­lec­tion agency
• Real estate agent
• Travel industry
• Trans­lat­or (au­thor­ised)

These approvals are often linked to pro­fes­sion­al qual­i­fic­a­tions. Last but not least, many prac­ti­cing trades are subject to the ob­lig­a­tion to have a master craftsman cer­ti­fic­ate.

In the UK, you can be self-employed as a sole trader, part­ner­ship member or limited liability company member (if the company is not classed as a cor­por­a­tion). It is important to make sure you assess what kind of self-employed worker you are to protect yourself from issues with the tax au­thor­it­ies later on.

Whilst it is perfectly legal to have a part-time self-employed side job, be sure to consult your work contract to ensure that your company has not expressly forbidden it. If the business area that your part-time self-employed work is in is the same as your main job, you must also make sure that there are no non-compete clauses and that you aren’t engaging in a conflict of interest. Here’s a breakdown of the ways your side gig could neg­at­ively affect your main job: 

A part-time side job may be a bad idea if it places so much strain on you that you aren’t able to fulfil the duties of your regular job – for example, if it makes you con­stantly tired.

Many employers include a non-compete clause in their employee contracts. This is to ensure that you do not take the in­form­a­tion, skills and contacts you acquire at your main job elsewhere (either to a new employer, or to a self-employed side job). Some em­ploy­ment contracts even contain a non-com­pet­i­tion clause beyond the employee’s departure from the company. Be sure to peruse your contract carefully before beginning any self-employed part-time work to ensure that you are legally covered.

Sometimes the re­stric­tion of secondary activ­it­ies by the employer may be per­miss­ible if the employee rep­res­ents the employer’s business ex­tern­ally – as a manager, for example. An employee’s conduct in their free time sub­sequently has an effect on their employer, so they must also take into account the employer’s le­git­im­ate interests here, including when taking up a secondary job.

In any case, it is advisable to inform your employer about any planned part-time self-em­ploy­ment activ­it­ies and consult with them about it. This will help to avoid potential conflicts at a later stage.

Whilst you may not be legally obligated to inform your employer that you are starting a side job, you def­in­itely need to let HMRC know that you plan on engaging in part-time self-employed work. Re­gis­ter­ing with them is easy and can be done online on their self-em­ploy­ment re­gis­tra­tion website.

As with all forms of income, you will need to pay taxes on any money you make from your part-time self-employed job. If the main reason for your side job is to turn a profit, and the work is regular and con­tinu­ous, then you qualify as self-employed for tax purposes. If you are self-employed, you can pay your taxes by filing a self-as­sess­ment tax return.

You will also need to make ad­di­tion­al con­tri­bu­tions to National Insurance on top of those made through your regular job. For any profits made on self-employed profits totaling more than £6,205, you will need to pay Class 2 National Insurance. This money is paid directly to HMRC, and you can register to make these payments online. For earnings above this, you will need to register for Class 4 National insurance. If your profits fall between £8,424 and £46,350 you will need to pay 9%, and profits of more than £46,350 will be charged at 2%.

Like full-time self-employed workers, those with a side job can use allowable de­duc­tions to reduce their tax bill. If you can prove that an expense is being used solely for your business, then you can deduct the cost from your tax bill. De­duc­tions fre­quently expensed by part-time self-employed workers include:

• Space in your home used ex­clus­ively for business
• Car-related expenses that are ex­clus­ively related to business (mileage, gas charges for rideshare drivers)
• Tools or equipment required for the job

More in­form­a­tion on what expenses can be deducted by a self-employed worker filing taxes can be found on the gov.uk website.

If you are self-employed part-time, you should also be sure to insure yourself against damage caused by your second job. The most important ones to keep in mind include:

Business liability insurance covers damage caused by your pro­fes­sion­al activity. These damages often have simple causes, but can be very serious. You might injure a customer on your business premises, or make a technical error as a craftsman – one window in­cor­rectly installed and the house now has water damage. Major damage can also be caused with faulty software or viruses, which you could spread un­wit­tingly via email.

If you use an office or workshop, inventory insurance will protect your inventory from various possible damages. This insurance can also be extended to include insurance against natural hazards (storm, flood, etc.), glass breakage or business in­ter­rup­tion.

Please note the legal dis­claim­er relating to this article.