Running a Business While Employed: What You Need To Know

  • 13 min read

Setting up a business whilst already employed can seem daunting and a little treacherous. Many people worry about losing the security of their employment and being sanctioned for moonlighting if their employer was to find out.

However, plenty of entrepreneurs successfully started their own businesses whilst working for someone else. Notable examples include Twitter founder and CEO Jack Dorsey, Salesforce founder and director Marc Benioff and Spanx founder Sara Blakely. 

Although it can clearly be done, there are things entrepreneurs need to consider before they rush off and register their business alongside their existing employment. One such area to consider is the legalities surrounding registering your business. 

If you want to start a side business, the good news is that there are no legalities stopping you from doing so.

Whilst it can seem pressurising to run a business on the side whilst in full time employment, thousands of small business owners first successfully started their companies under the safety net of a full time job.

That does not mean the process is not without hurdles, however. Here we comprise all the ins and outs you need to know before taking the plunge and starting your own business whilst still employed.

Consider your time

Starting a business as an entrepreneur is time consuming and overwhelming, which can make it difficult to manage your work life balance. You will essentially never be switching off from work, at least to begin with, so make sure that you are equipped to be able to manage your time and productivity.

Managing a business on the side while working is no easy feat, but there are options available to you.

If you can carve out a routine, say working on your business for three mornings a week, and spending the rest of your working week dedicated to your full time employment, you could approach your employers about a flexible working arrangement.

Alternatively, if it is financially viable to you, you could request that your hours be shortened to part time.

The last thing you want is your full time employment productivity dropping and jeopardising your position, but likewise if your current job takes up too much of your time, your new business will never get off the ground.

Make sure that you are able to either find, or maintain a healthy balance that also doesn’t compromise your health, family and lifestyle.

Start small

As we mentioned above, to start a business you will need to carve out time to be able to dedicate toward your new business venture. To do this, like with any company, the best thing to do is start small.

When building a business while working full time however, it is advisable to keep your side business part time.

Not only does this allow you to adapt slowly to the many changes that come from being an entrepreneur, it is a sustainable business model for retaining both dependable income and full time working benefits.

Growing a business is a huge financial burden for any new business owner, and being in a full time job whilst starting this process gives the added advantage of not risking savings, or being unable to pay monthly bills.

Understand your employment contract

Whilst there are no legal limitations preventing you from starting a business while under a full time employer, your employment contract may have particular disclosures written into it that you need to be aware of.

If you develop intellectual property as part of your full time job, and your new self employed business will be developing the same products or using similar technologies, there may be conflict of interest disclosures and non-disclosure agreements that you must obey.

Additionally, if you have developed something for your own business using company resources and on company time, it becomes the intellectual property of the company which will land you bereft of your work, and in a serious contract breach.

Some businesses will also go as far as to include non compete clauses which prevent you from leaving to join a direct competitor, and that allow the company to take legal action against a business of your own creation that they perceive as a direct threat.

Ensure you have thoroughly read through each page of your contract as clauses such as the ones listed can make the process of starting your own business much more complicated, and that’s before there is the extra complexity of starting a business while working.

If possible, it’s also best to make sure that your new side business has no links to your current employer. If there are similarities however, you must be able to prove that the work, research and ideas are solely yours, and that they were developed independently, away from your current employment and its resources.

Talk with your employer

Whilst your employment contract may have disclosures, that doesn’t mean that you shouldn’t talk to your current employer and be as transparent as possible.

If your new business offers no direct competition to your current company, they may come to see you as either a collaborative partner, consumer or potential client. Any new small business needs a valuable network, and your current place of employment could be the best place to start.

Additionally, depending on your relationship with the business, your employer could be a potential investor to your startup, or have equity in a joint venture.

If your side business could offer a service to your day job that means they would become a client, partner or investor, make sure to consult independent legal advice so that you can proceed carefully and correctly before agreeing terms and conditions.

Save up your side income.

Once your side business starts making a profit, it could be tempting to get swept away in the benefits having two incomes can bring.

This will not be sustainable, and in the long run could harm your company if you were to leave your full time position as you may have depleted a fund which could sustain you.

From early on, set yourself budgetary guidelines that will prevent you from spending beyond your initial means. Choosing to invest or save your profits will help ease your stress when you do become fully self employed by providing a safety net for the future.

Take care of taxes

When you start a business, whether you choose to become a sole trader or limited company, HMRC must be informed. This is because legal paperwork such as your Self Assessment Form for your tax return can be submitted, and tax generated from any income you earn can be recorded and paid.

HMRC will also want to assess your business’s intent in order to know whether or not to apply a Badge of Trade. A Badge of Trade is given if HMRC deems a business is being operated in whatever capacity. Factors that make up this decision can include the frequency of transactions, and whether they are regular and business-like in appearance.

This means if your business receives payment, whether for a completed job, or something as small as an advertisement, you will be deemed a business in the eyes of the law so it’s vital to get yourself registered and avoid consequences.

Know when to make the switch

Once your business is established and there is a clear demand for your products or services, plus your business is making a steady profit – it’s time to take the leap into self employment.

The first step to transition your business from its humble beginnings as a side business to a full blown legitimate company is to register with HMRC within three months of your business’ official start date, starting from when you leave your full time job and go solo.

You can choose to either register as a sole trader, or limited company and both have various benefits depending on the size of your company and the work you will be undertaking.

Limited companies have limited liability, which separates your personal assets from those of the company, protecting them in the event of things going wrong. Meanwhile if you choose to set up as a sole trader, you require less startup capital to do so and the entirety of the profits made from the business go to you.

If you choose to set up as a limited company, you must also register your business with Companies House in an application process.

Setting Up A Limited Company While Employed

Companies House Director Registration

One important thing to bear in mind when forming a Limited (LTD) Company is that information regarding the directors of the company is made publicly available on Companies House.

This means that as you are likely to be a sole, or co-founder, your information including your name and registered address will be publicly accessible, and could be discovered should an employer, or colleague, ever google you.

Whilst there are preventive steps you can take to minimise this, examples of which can be found in our blog here: The Implications of a Registered Office Address, it is something to bear in mind if you cannot substitute your real address for a virtual address, or have the name of another director registered.

Registering with HMRC

The moment that you begin commencing business activities, you must register as self-employed with HMRC. It does not affect the status of your existing employment which will continue to be taxed by PAYE in the same way.

Usually you are required by law to register with HMRC at the point where you start receiving income from your business, but it is advisable to do so when beginning your formation, especially if you will initially be incurring expenses.

Paying National Insurance Contributions (NIC)

When in employment you automatically pay Class 1 Employees NIC on your wages. These are deducted from your salary alongside your Income Tax, and your employer then pays those to HMRC on your behalf.

However when employed by your own Limited Company, you will then pay Class 1 Employees NIC on any wages you receive from your own company once they go above the primary threshold. At the time of writing the threshold is £183 per week.

Your company will also be required to pay additional employers’ NIC on wages that exceed the secondary threshold, which at the time of writing is calculated if your profits exceed £6,475 a year.

Self Assessment Tax

A majority of the time, your personal allowance (which at the time of writing is £12,500) will be utilised in full against the income you receive from your employment. This means that any profits your business makes will be subject to tax. 

To do this, you are required to file a Self Assessment tax return annually where you must report the details of your business income and expenses – even if there initially aren’t any to report. 

On the form you must also include details of your employment income. 


Tax that you have already paid via PAYE will be taken into account when calculating the tax either payable or refundable at the end of the tax year.

In the early years of trading, if your expenditure is expected to be more than your income Limited Companies are granted no provisions to relieve the losses against current or prior employment income. 

Costs relating to business activities will however be allowable deductions, for example equipment costs, travel expenses and office overheads.

Unsure whether to be a Sole Trader or LTD Company? Read our top 10 considerations here.

When Registering as a Sole Trader

HMRC Registration

When registering as a sole trader, there is no need to register with Companies House and your details will therefore not be made publicly available.

Sole Traders simply need to register for Self Assessment with HMRC, here. It is a legal requirement to register if your profits exceed £1,000.

National Insurance Contributions (NIC)

If you register as a sole trader, you will pay two types of National Insurance. 

The first rate will be a flat rate of Class 2 NIC. This means that if your profits are under the threshold for the tax year (at the time of writing the threshold stands at £6,475) then you will be able to apply to be exempt from Class 2 NIC. This won’t affect your entitlement to State Pension, nor any other benefits if you’re also paying Class 1 NIC on your wages.

The second rate you will need to pay is Class 4 NIC on your business’s profits. However, if you are paying enough Class 1 NIC on your wages you can apply to defer your self-employed NIC.

Filing Taxes

As a sole trader you keep all your business’s profits, but you must pay tax on them.

Your Income Tax will be calculated on your total earnings, so you’ll be paying tax on both your combined income from your employment and any profits received from your sole tradership. 

Keep in mind that if your sole trader profits exceed a tax band threshold, you will automatically move into the higher band and pay the higher rates because of the combined totals.

At the time of writing, the current rates are calculated like so:

  • On the basic income tax rate, you’ll pay tax of 20% on all earnings above your personal allowance (£12,500 at the time of writing) and below the threshold of the basic rate, which at the time of writing is £37,500.
  • On any earnings above the basic rate, you’ll incur income tax of 40% above the threshold unless your earnings push you into the higher rate band, which at the time of writing is £100,000. 

When preparing your Self Assessment tax return, you will need to disclose the tax you have already paid on earnings from your employer. 

This is to make HMRC aware that you have already paid tax on part of your total earnings. The amount of tax you owe will be worked out by HMRC once you submit your Self Assessment tax return.

To conclude

Lastly, whether you are registering a LTD Company or as a sole trader, it is advisable to check your employment contract.

Some contracts will have clauses regarding individuals taking on projects or secondary sources of income, and it’s therefore important to ascertain whether or not you would be at risk of breaching your contract.

While any tax affairs and business dealings with HMRC are entirely confidential, Limited Companies must be aware of their information being made publicly available through Companies House. This is where a breach of your employment contract could occur, if your employer was to discover the registration.

At MachFast, we never recommend misleading your employer, even though it is possible to start your own business without the need to disclose this information.

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