Will completing a HMRC tax return alert my employer that I'm freelancing?

Freelancer’s Question: I work full-time at a 9-5 job and my tax is of course automatically deducted from my pay via PAYE. But in the past year, I've started doing some freelance work on the side which has bought in more than £1,000, so I believe I will need to fill out a tax return for HMRC, on a self-employed sole trader basis.

My question is - will completing a self-assessment form alert my employer that I am freelancing? Will HMRC get in touch with them or anything like that? I’d rather that at this stage, I keep my side-hustle to myself.

Expert’s Answer: Many people are in a similar position to you in taking on freelance work alongside permanent employment. It means additional income but also the responsibility of notifying HMRC of the extra income.

The £1,000 notification threshold

An individual can earn £1,000 from being self-employed before you have to notify HMRC.

Once you exceed that £1,000, you are required to register with HMRC as self-employed and file a self-assessment tax return with HMRC each year.

Filing a self-assessment tax return with HMRC is a formal process, but the Revenue will not communicate with your employer to inform them you are earning other income.

Inform HMRC before October

However you need to tell HMRC as soon as possible that you are working as self-employed – the latest you can inform HMRC is by October 5th after the end of the tax year in which you became self-employed. And just for the avoidance of doubt if you’re not sure, the tax year runs from April 6th to April 5th the following year.

While HMRC will not tell your employer about your additional income, there are a couple of considerations you may wish to make.

Firstly, do you have a legal requirement to tell your employer about your freelancing on the side?

Not just tax considerations if you freelance on the side

Although your tax affairs are completely confidential, you may be required to inform your employer to ensure you’re not in breach of your contract.

So it’s probably best to check your contract of employment on this matter.

It might be best to be honest and up front with your employer in case they do find out about the extra work at some point in the future – although rest assured that the information would not come directly from HMRC!

How to avoid drawing your employer's attention to your self-employment

The other consideration you should make is that you will have a tax liability to pay through your additional work. This would be determined by your self-assessment tax return – but you need to make sure that you do not select the option to have the tax collected through your tax code.

This could inadvertently draw attention to additional income to your employer, as HMRC would issue you with a new tax code to apply to your employment income. While this wouldn’t directly inform your employer that you are undertaking self-employment on the side, it could lead to questions if someone dug deeper into the tax code received by your employer.

To avoid this happening, you should choose to pay any self-assessment tax liability directly to HMRC, and not have it collected through your tax code. You can elect how the tax is paid when completing the return. At this point, you may wish to enlist the help of an accountant to ensure you are completing the return correctly.

No place to hide...

Finally, it is also worth understanding that should you decide to form a limited company, your company details will be made available at Companies House.

In which case your employer (and anyone else who visits the Companies House website), would be able to access this at any time.

Good luck with your freelancing on the side!

The expert was Marc Seymour, director at Taxevo, an accountancy firm serving freelancers, contractors, and the self-employed.