Tax help with a side hustle and self assessment/tax

Hi wondering if anyone can help me. I’m never finding any clear answers on the internet and I’ve even spoke to a few accountants who also couldn’t help or didn’t understand my goal here. Basically I have a full time job where I am in the 40% tax bracket. I did a one off job for a friends company where I was paid 15k. This is of course untaxed Im looking for the most tax efficient way to handle this money, if I I was just taking it I’d loose 40% as tax. Reading id also have to pay ni of class 2 and 4. Is this right? I was also reading I can put 15k into my sipp. So save 100% tax? But then I’d end up with 25% topped up automatically, I’d owe this 25% back? Also reading I could put 80% of this 15k into a sipp and I’d end up with the 25% top up so I’d have the full 15k in my sipp. I’d also have 25% left in cash to pay back the tax they topped me up by. Really not sure how to proceed. I tried to do a self assessment on hmrc website emulating this. If I put the whole 15k in I’d assume my bill would be ni plus the 25% top up they gave me. I would have put all the 15k into the sipp so I’d have to use money from my paye job to cover the 25% top up. The bill I’m given is less that this 25% top up though. So I’m confused with the maths If I put 80% of the 15k into my sipp. It gets a 25% top up. Meaning I’d have the full 15k in my sipp. My thinking is with the 20% left over I can use this to pay my tax bill plus ni. However my tax bill is even higher than if i put my whole amount of the 15k in to the sipp. None of the numbers make sense. Ideally I’d just get my paye income and the side hustle income just goes into my sipp with no tax at all. Am I mis understanding my options here?

Hi
The 15K income will be liable to 40% tax and also class 4 NI but no class2 will be due on the 15k as you will have already paid class 1 under PAYE. HMRC cannot advise you on if/how much to put into a SIPP as this is financial advise which we are not authorised to give.

Hmm, tough when trying to pay your taxes and it made quiet difficult to work anything out properly

Hi, I`m just an observer and you must check this with a financial adviser / SIPP provider but my thought are: - As you contribute NI through your employer and are at 40% tax rate, I imagine all you will have to pay is 2% class 4 on the £15k as it will exceed the 6%/2% threshold = NI £300 - The contribution to a SIPP should be £11,760 ((£15k -£420) x 80%). The SIPP provider will arrange Government Contribution of 20% which will amount to £2,940. This will be a total SIPP investment of £14,700. - In your self assessment forms you will claim a 20% rebate for the contribution = $11,760/.8 - £11,760 = £2,940. So this results in: Self employed income £15,000 - 40% tax (£6,000) - NI Class 4 (£300) + 20% SIPP contrib £2,940 = £11,640 net The difference between the £11,760 SIPP contribution and the £11,640 net tax effect is the 40% tax on what is the £300 NI class 4 payment. So... the net cost to you of the £14,700 SIPP contribution from £15k self employment will be (£300 NI contribution + 40% tax on the NI contribution £120) = £420 cost £15,000 self employed income, $14,700 SIPP investment post govt contribution, £300 NI contribution but you will have to obtain an additional £120 from your employment income to cover the 40% tax on NI contribution.

Sorry, the amounts were incorrect as I changed only part of it from £420 to £300 covering NI & tax thereon. I had done one. I will do this just with NI of £300 and thus you have a SIPP investment of £14,700- The text should have been: - As you contribute NI through your employer and are at 40% tax rate, I imagine all you will have to pay is 2% class 4 on the £15k as it will exceed the 6%/2% threshold = NI £300 - The contribution to a SIPP should be £11,760 ((£15k -£300) x 80%). The SIPP provider will arrange Government Contribution of 20% which will amount to £2,940. This will be a total SIPP investment of £14,700. - In your self assessment forms you will claim a 20% rebate for the contribution = $11,760/80% - £11,760 = £2,940. So this results in: Self employed income £15,000 - 40% tax (£6,000) - NI Class 4 (£300) + 20% SIPP contrib £2,940 = £11,640 net The difference between the £11,760 SIPP contribution and the £11,640 net tax effect is the 40% tax on what is the £300 NI class 4 payment. So... the net cost to you of the £14,700 SIPP contribution from £15k self employment will be (£300 NI contribution + 40% tax on the NI contribution £120) = £420 cost £15,000 self employed income, $14,700 SIPP investment post govt contribution, £300 NI contribution but you will have to obtain an additional £120 from your employment income to cover the 40% tax on NI contribution.

Hmm what you say is what id expect! But its not seeming to work that way when i do my self assessment though. Here are the actual numbers I made £58,772 through paye and my tax paid was £9,793.20 I made £15910 sole trader The self asssessment is adding these two numbers together to make £74,682 then its taking away the tax free allowence of £12,570 from that to give a taxable amount of £62,112 I put £15910 from my freelance into a sipp and i have £19,887 in my sipp So looking at the next calculations. Its adjusting Basic tax rate which is normally £37700 (£50270 - £12570) by how much i put into my sipp (£19887) . So £37700 + £19887. Adding upto £57587 . So now its trying to work out tax on this at 20% and the rest over at 40%. So £62,112 - £57587 = £4525. So its £57587 at 20% tax and £4525 at 40% tax The tax due is £11517.40 at 20% and £1,810 at 40%. in total i owe £13,327.40 in tax The self assessment then takes of the tax i've already paid in my paye job and add Ni which is (£13,327.40 - £9,793.20) + £156.50 This results in a tax bill of £3,690.70 This really doesn't make sense to me as my main job is already handled. I made £58,772 through paye and my tax paid was £9,793.20 So all that is left to tax is the £15910. But i put that all into a sipp so in my sipp i have £19,887. I should owe hmrc £3977 thats not even including Ni. Which is lower than the £3,690.70 that self assessment is saying i owe. So if i do this again just putting 80% into my sipp as ejc7691 suggests. Self assessment says my tax bill is higher! I made £58,772 through paye and my tax paid was £9,793.20 I made £15910 sole trader The self asssessment is adding these two numbers together to make £74,682 then its taking away the tax free allowence of £12,570 from that to give a taxable amount of £62,112 I put £12728 (80% of £15910) from my freelance into a sipp and i have £15910 in my sipp So looking at the next calculations. Its adjusting Basic tax rate which is normally £37700 (£50270 - £12570) by how much i put into my sipp (£15910) . So £37700 + £15910. Adding upto £53610 . So now its trying to work out tax on this at 20% and the rest over at 40%. So £62,112 - £53610 = £8502. So its £53610 at 20% tax and £8502 at 40% tax The tax due is £10722 at 20% and £3400.8 at 40%. in total i owe £14122.8 in tax The self assessment then takes of the tax i've already paid in my paye job and add Ni which is (£14122.8 - £9,793.20) + £156.50 This results in a tax bill of £4,486.10 So as you can see its hard to work out what to do!

I have excluded NI from this calculation.. Tax from you salary should be: £12,570 tax free + £37,700 * 20% = £7,540 +(£58,772 - £50,271) x 40% = £3,400.40 = Total £10,940.80 but the tax paid under PAYE appears to be £9.793.20 so you will still need to pay HMRC £1,147.60 on your salary. (Probably you had a pay rise during the year or a bonus and your employer had only deducted circa. 20% tax???) Tax from your Freelance work: Taxable £15,910 * 40% = £6,364 LESS SIPP deduction is the actual contribution £12,728 / 80% - £12,728 = £3,182 Total tax payable £3,182 but you have (£15,910 freelance work - £12,728 SIPP contribution by you) = £3,182 cash left over from your freelance work to pay this tax. Tax Payable: Total tax payable for the year £1,147.60 tax Salary + £3,182 tax Freelance work = £4,329.60 (but you still have £3,182 cash still have from freelance work). So this is as per your analysis result £4,486 but including NI. So….. Freelance work: cash £15,910 - SIPP contribution £12,728 = £3,182 cash available which you will pay to HMRC for tax on Freelance work (above) = £nil cash left from Freelance work SIPP contribution £12,728 + SIPP Govt Contribution £3,182 = Total SIPP £15,910 which is the same as your Freelance remuneration But ..... you still have to find the amount of tax which was not deducted from your salary as PAYE and the small amount of NI on freelance work.

Ok worked it out! I underpaid tax for the previous tax year which is throwing the numbers off. a mistake from my old accountant. So best way is to put 80% in to you sipp get 20% uplift. Then do a tax return and use the other 20% I didnt put in to pay the tax. Will have full amount from freelance in the sipp and 0% tax overall apart from paying ni. Which cant be avoided. Other option is to ss on paye job down the amount of freelance to save on ni. Then pay tax on the freelance. Will actually save more but require a bit more work and not all jobs offer ss

Also, when you get your HMRC self-assessment bill, HMRC may have added circa. £16k freelance income to your future bills and make the future tax on circa. £16k payable in 2 installments in Jan, 2025 & July, 2025 as `payment on account`. This is HMRC`s attempt to get the tax payable for income when it is earned as opposed to 6-12 months later when the tax returns are lodged and HMRC issue an assessment. If you get the HMRC `payment on account`on your current tax liability and you don`t think you will earn as much as stated or not earn any freelance work at all, you need to tell HMRC that you will have no/reduced income either online or via a SA303 form by post.