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Example

Louise works for a plumbing firm and earned £18,000 from this employment in the tax year 2011-12. Her employer deducted tax and Class 1 National Insurance contributions from her pay through PAYE.

She also worked as a self-employed plumber in the evenings and at weekends. Her profits from self-employment were £9,000 for the tax year.

Louise paid Income Tax of £2,105 on her employment earnings. Her personal tax-free allowance for the year was £7,475, so she paid tax at 20 per cent on £10,525 (£18,000 - £7,475 = £10,525), which is £2,105.

She paid Class 1 National Insurance contributions of £1,293.64 on her employment earnings. The 'earnings threshold' for paying Class 1 National Insurance is 52 weeks x £139 a week = £7,228, so she paid 12 per cent on £10,772 (£18,000 - £7,228 = £10,772), which is £1,293.64.

She paid Class 2 National Insurance contributions as a self-employed earner at the flat rate of £2.50 a week. 52 weeks at £2.50 a week is £130.00.

She has to pay £1,800 in Income Tax on her profits from self-employment. Her tax-free personal allowance was used up when working out the tax on her employment earnings, so all her profits (£9,000) are taxed at 20 per cent.

She has to pay Class 4 National Insurance contributions of £159.75 on her profits from self-employment. The 'lower profits limit' for paying Class 4 National Insurance is £7,225, so she has to pay 9 per cent on £1,775 (£9,000 - £7,225 = £1,775), which is £159.75.

Further information

To find out more about paying tax and National Insurance if you’re both employed and self-employed read the related guide 'Employed and self-employed tax and National Insurance'.

• Employed and self-employed tax and National Insurance

Useful contacts

• Money, tax and benefits contacts