If you are both employed and self-employed, then your tax gets a bit trickier. This article explains the best way to handle this in the app.
 

A little background

The difference between PAYE income and self-employed income

With income you earn from employment, you will be part of the "Pay-as-you-earn" tax system. This means that everything you get paid has already been taxed. This is sometimes called your "Net pay".

But with self-employed income, you'll work out your tax bill at the end of the year through your tax return.

The PAYE income you earn has an impact on the amount of tax you pay on your self-employed income, because you could be put into a higher tax bracket.

Different rates of tax based on total earnings

The first £12,570 of income you earn is tax free. Then you pay 20% income tax until your total income goes over £50,270, where you'll start paying a higher rate tax of 40%.

So if you earn £50,270 of PAYE income, you'll pay 40% tax straight away on your self-employed income.
 

How to use Coconut if you have employment income

Use Coconut for your business income and expenses

Think of Coconut as the place to record your self-employment income and expenses.

We recommend paying your employment income straight into your personal current account. 

Recording employment income in Coconut

As your employment income has an impact on the tax you pay on your self-employment income, you can add in your total employment income into Coconut from the Tax Profile so that your accountant will be able to see it (if you have one).

Adding this won't affect the income and expense values in your self-employed tax return or tax saving suggestion.

What to enter as the "Annual salary"

For your annual salary, you should enter what your average salary is for the year. If you only work part of the year, you should still enter your annual salary. 

E.g. if you earn a £20,000 salary for 6 months of the year, you should still write £20,000.

And if you earn £20,000 for the first 6 months and £24,000 for last 6 months of the tax year, you should take the average and use £22,000.

What to enter as "Months employed in tax year"

Here you should enter the months you expect to be employed during the tax year. 

E.g. if today is September 2021, but you intend to be employed for the whole of the 2021-22 tax year ending on 5 April 2022, then you should enter "12 months".

And if you plan to only work from April to July 2021 during the 2021-22 tax year, you'd enter "4 months". 

Paying in Employment Income

We recommend you pay your employment income into your personal current account. If you do pay in PAYE income to your connected business account though, you can categorise it as "PAYE Income" - this makes sure it doesn't count towards your self-employed income.

A note about your saving for tax suggestion

The saving for tax suggestion is a guide to let you know how much you should be budgeting. The exact amount will be worked out when you do your tax return each year.


If you need some more guidance on this, check out our Setting custom set-aside rates for tax saving suggestions article.

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