Answer: Any extra income earned above your regular salary requires you to fill in a Self-Assessment tax return declaring the extra income and in which you will be classified as self-employed. You may also need to pay Class 2 and Class 4 National Insurance Contributions (NICs) on the contracting business, but only if your contracting earnings are over £5,075, and after taking into account the NICs you’ve paid on your salary.

You can register online at the HMRC website. You can also register by phone.

Income Tax

Income tax will have to be paid at your marginal rate on the contracting income as if it’s your top slice of income. Filling out the tax return for that will also mean that you can “catch up” on any coding problems that may have left you with an under or over payment on your salary through PAYE.


If you earn less than £5,075 from the contracting you won’t have any extra NICs to pay at all. Above that amount you may have to pay Class 2 NICs (at a flat rate levy of £2.40 a week). Class 4 NICs are paid on profits over £5,715. The rate depends on how much NICs you’ve paid on your salary.

If you need to pay Class 2 NICs, that starts straight away, but Class 4 and income tax payments won’t be due until 31 January after the end of the tax year, along with your tax return – Example: anything you earn up until 5 April 2011 will be due by 31 January 2012.