Customers helped

Why moonlighters must be money-smart

Updated 06 December 2022

5min read

Nick Green
Financial Journalist

For growing numbers of people, the 9-to-5 job is giving way to five to nine mini-jobs at once. With technology allowing for multiple income streams, it’s vital for ‘gig-workers’ to take better control of their personal tax and financial planning. Article by Nick Green.

Second jobs, side-hustles and freelancing

You wake up and record your bathroom vlog, promoting a new brand of facewash. You check your email over breakfast and complete a quick paid survey. Driving to work you drop a paying passenger off at the station. At your desk, you approve a booking from a traveller who wants to stay a few nights in your annex. Over your lunchbreak, you lead a licenced aerobics class in the local park. After driving home (with another passenger), you take a number of the neighbours’ dogs for a walk. That evening, you babysit for a family in the next street, and after the kids are in bed you teach an online guitar class via your laptop. Going home, you snap a few photos of the Milky Way to sell to an online image library.

And this is why you have no friends.

Well, hopefully none of us are quite so irritating as that. But such a lifestyle is now at least theoretically possible, thanks to the way technology connects potential customers with anyone able to offer a product or service. In truth, the list above barely scratches the surface of the number of ‘gigs’ or ‘side-hustles’ that can now be squeezed around a full-time job – or which can become a whole career in their own right.

In particular, in the post-COVID world, many people whose jobs have been furloughed or put on hold altogether have been forced to find other sources of income in the interim. If you're in this position, you'll need to learn fast about how to tap the earning potential of your hobbies and talents, and how to manage the new shape of your finances. 

Let us match you to your
perfect accountant

How the gig economy has exploded

Here are some of the other popular sources of freelance work, second jobs and 'work on the side' that the internet has helped to bring into the mainstream:

  • Tech
    By far the most lucrative types of gig are in technology development, working on things like AI, blockchain or cybersecurity. Freelancers in these areas are in huge demand – which is great, but only if you have the skills.
  • E-commerce
    You can run your own shop without needing a shop if you buy and sell online – all you need is the space to keep your stock, and an irresistible website.
  • Web design
    All those new e-commerce entrepreneurs are clamouring for irresistible websites.
  • Creative services
    Can you paint, draw, write, sing, compose, design, proofread, typeset, take great photos or provide a good voiceover? Someone out there on a site like Fiverr or Freelancer wants your talents.
  • Teaching
    You no longer need to be in the same room as your students to take a class. Sites such as Skillshare have earning potential for everyone from private tutors to artists and musicians.

The list goes on. Thanks to the internet, you can now ‘sweat your assets’ as never before. In other words, everything you own and anything you can do is a potential source of income. All you need is a buyer.

The downside is that where there is income, there is the likelihood of tax. As your sources of income multiply and grow, you need to take care that you keep on the right side of the tax authorities.

Do I need to pay tax on my self-employed earnings?

The answer is usually, ‘Yes.’ However, there are a few things to note here. The first is that self-employed earnings refer to profits only. So if you took £20,000 in the tax year but had £8,000 of allowable business expenses, then your earnings would only be £12,000.

The second point is that if your self-employed profits are very low (£1,000 or less for the tax year) then you won’t need to complete a self-assessment tax return and won’t be taxed on the money. For profits above £1,000, you will need to complete a tax return. (N.B. if you had a large turnover only for expenses to reduce profits to below £1,000 it is advisable to complete a tax return anyway to make these circumstances clear, or else HMRC may get suspicious.)

You will only have to pay income tax if your total profits for the tax year are above your personal allowance (£12,500 in 2019/20). If your profits are at least £6,365 then you’ll need to pay Class 2 National Insurance contributions (NICs), and if they are at least £8,632 then you must pay Class 4 NICs as well.

How do I work out if I’m employed or self-employed?

If you’re a freelancer, contractor or agency worker, then for some jobs it can be hard to tell whether a particular assignment counts as employment or self-employment for tax purposes. In these circumstances, you can get a better idea of your employment status using the Employment Status tool on the HMRC website. It works on a job-by-job basis, so you have to enter details of each assignment separately.

What about income from other sources, e.g. rental property?

If some of your earnings come from rental property (e.g. AirBnB or similar) then yes, this counts as income and must be included on your tax return. The same goes for any tips or commission you might earn.

However, income from employments will be taxed at source (via PAYE) so if these are your only source of income then a tax return probably won’t be required. Pension income is also usually taxed at source.

Do self-employed people need a pension?

If you’re self-employed in any form, then setting up a personal pension should be one of your top priorities. An alarming number of people identifying as self-employed have neglected pension saving: ONS figures in in 2018 revealed that nearly half of those between 35 and 55 have no retirement savings at all, and only 70 per cent of over-55s have any. Even more striking is that currently only 7 per cent of self-employed people are paying into a pension.

You might think that, being self-employed, you will never be forced to retire. The fact is that no-one is legally obliged to retire anymore, except for certain demanding types of jobs. But most people eventually reach an age where they want to make that decision for themselves.

As a self-employed person, you may be put off pension saving by the unpredictability of your income. However, with a stakeholder pension (a popular type of personal pension) you can pay in as little as £20 a month and vary your contributions, even taking breaks without any penalty.

Another deterrent may be the thought of locking away your money until at least the age of 55. If this is a real concern for you, then you may want to consider a Lifetime ISA (LISA). This provides a similar bonus to a pension (25 per cent) and can be accessed anytime – though withdrawals made before age 60 suffer a 25 per cent penalty, so should really only be made in an emergency. For retirement saving, a LISA may make a useful supplement to a pension, though should not be considered a substitute for one.

Here are some more pension tips for the self-employed.

Match meI’d like to speak to an accountant

About the author
Nick Green is a financial journalist writing for Unbiased.co.uk, the site that has helped over 10 million people find financial, business and legal advice. Nick has been writing professionally on money and business topics for over 15 years, and has previously written for leading accountancy firms PKF and BDO.