PAYE considered in tax returns

Question

I have been working for a company (UK) and been paying tax using the PAYE scheme and have earned under £10,000 for this tax year so far.

As part of my job, I'm taking on a role that is a contractor or freelancer and deciding whether I should pay the tax myself or whether or not I should let the tax be paid through the company I'm working for.

The contract role is only for a few months, so I would in no way meet the threshold to pay tax, however, if my PAYE and the income I get working as a contractor / freelancer is calculated together then I would earn over the threshold.

I'm asking, when I do my tax returns, will I need to include the money I got whilst working for my employer, or is this calculated separately?

Answer 1

When you do your tax return, your total income from the year from all sources is added up. So you will need to include your employment income as well as your contractor income. Any tax taken off at source through PAYE will then be deducted from how there is to pay. So whether you pay the tax or your employer pays it, it should end up the same, although the timing will differ.

There will be differences in National Insurance treatment, and you don't necessarily have a free option to choose which happens - the nature of your relationship may mean you have to be classed as either employed or self-employed under HMRC rules.