Starting a Business While Employed: What You Need to Know

Can You Run a Business While Employed?

Yes. There is no law preventing you from starting a business while employed. However, you need to consider:

• Your employment contract (restrictive covenants, non-compete clauses)
• Your employer's policies on outside interests
• The tax implications of having both employment and self-employment income
• Your capacity to do both well

Check Your Employment Contract

Many employment contracts include clauses about:

• Non-compete — you may not be able to start a business in the same industry
• Conflicts of interest — your side business must not conflict with your employer's interests
• Notification requirements — you may need to inform your employer about outside work
• Working time — you must not let your side business affect your employment performance
• Intellectual property — anything you create in your employer's time or using their resources may belong to them

Breach of contract can lead to disciplinary action or dismissal. Read your contract carefully and seek legal advice if unsure.

Tax Implications

Two Sources of Income

You will have:

• Employment income — taxed through PAYE
• Self-employment income — taxed through Self Assessment

Both are added together to determine your total income and tax rate. Your self-employment profit may push you into a higher tax band.

Example

Employment salary: £35,000 (taxed through PAYE) Self-employment profit: £10,000

Total income: £45,000

• All falls within the basic rate band
• Self-employment income taxed at 20% plus NI

But if your salary were £48,000 and side income £10,000, your total would be £58,000 — pushing £7,730 into the higher rate band at 40%.

Self Assessment Registration

You must register for Self Assessment with HMRC if your self-employment income exceeds £1,000 (the trading allowance). You will then file a tax return each year showing both your employment and self-employment income.

National Insurance

Self-employment income attracts Class 2 and Class 4 NI in addition to the Class 1 NI deducted from your salary. However, there is an annual maximum on total NI contributions if you pay both Class 1 and Class 4.

Practical Tips

Start Small

Test your business idea alongside employment before making any big decisions. A side business lets you validate demand, build a client base, and develop skills with the security of a salary.

Separate Your Finances

Open a business bank account from day one. This makes bookkeeping cleaner and ensures your employer cannot see business transactions in your personal account.

Track Everything

Track all business income and expenses from the start. Good records mean accurate tax returns and maximum expense deductions.

Set Aside Tax

Your employment tax is handled by PAYE, but your self-employment tax is not. Set aside 25-30% of side business profit for tax.

Plan Your Exit

If the side business grows to the point where it can replace your salary, plan your transition carefully. Consider timing, notice periods, and financial buffers.

Manage your side business finances with Accounted while keeping them separate from your employment income.

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Start building while you earn. Sign up for Accounted and let Penny manage your side business finances from day one.