Tax issues when you are self-employed and an employee

1. Employee and self-employed at the same time

When you choose to combine two different working lives - as an employee and self-employed - it can provide a more secure and calm start to your freelance career.

However, there are various administrative things you should be aware of in such a situation.

Approval from your employer or unemployment fund

When you start your freelance shop as an employee, it's important to be aware of whether this will require approval from your current employer or possibly your unemployment insurance fund if you're on unemployment benefits.

It may seem obvious to start a freelance career in the industry where you already have experience from your salaried job.

But you need to be aware of your employment contract and whether it includes a duty of loyalty.

If it does, as an employee, you won't be able to start up as self-employed in the same profession if you end up being a competitor to your current employer in any way - unless of course your employer has approved this.

Check your employment contract to make sure you've received written approval for your new second job from your employer first to avoid complications later on.

This relationship with your employer is also called the duty of loyalty. It will save you unnecessary headaches if you start by finding out if there is a delicate relationship here from the start.

Non-compete and non-solicitation clause

A non-compete clause is a provision in an employment contract that restricts an employee's ability to work for competing companies or start their own business in the same industry for a certain period after employment ends.

The purpose is to protect the employer's trade secrets and customer base.

The clause typically comes into effect when the employment relationship ends and its duration and geographical scope varies depending on the terms of the contract and local legislation.

The validity of a non-compete clause depends on it being reasonable and not unreasonably limiting the employee's future job opportunities.

Individually, a customer clause and a non-compete clause can be valid for a maximum of 12 months. Combined, they can last a maximum of 6 months(Source: IDA).

2. Tax conditions as an employee and self-employed

A full-time self-employed freelancer with a registered sole proprietorship usually pays B-tax.

As an employee, however, you pay A-tax, and the employer is responsible for reporting this.

As soon as you start your own business, it's your responsibility to be on top of your tax affairs.

So what do you do if your primary occupation is your salaried job and you've set up a business on the side as a second job or vice versa?

Tax as an employee and self-employed

As an employee and self-employed at the same time, you will have more than one income.

It's therefore important to keep track of your tax cards so you know which income should be registered on which card.

Fortunately, it's quite simple!

We have all three tax cards; free card, main card and bicard. We choose to ignore the free card for now, as it is automatically taken into use.

Motherboard - your primary income

Your main card is the tax card that should be used for your primary income - where you earn the most.

If you earn the most from your salaried job, this is the income that should go through the main card.

If your freelance business grows or you end up having your business as your primary source of income, it's the profits from that business that should be put on the main card instead.

You can only have one income to run over the main card, which must be the largest of the incomes, as opposed to the secondary card where you can register multiple incomes.

Bicard - Other income and secondary employment

The bicard is used when you have more than one income at the same time. Here you can register all your other incomes that are not your primary income, such as side jobs.

A popular question we've come across is whether you're subject to a restriction on your income via the loyalty card. When you make use of your bike card, you can't use your tax deduction, but there is no cap on how much you are allowed to earn.

If you are a self-employed freelancer as a second job, this is the tax card you should use for your income from that job - and vice versa if your employee job is your second job.

So the bicard is for all other incomes - those that are not your primary income.

You can read more about the three tax cards on Skat's website, where you can also view your cards digitally in self-service.

3. Personal deductions, tax deductions and deduction percentage as self-employed and employee

The personal allowance, which is a certain amount you can earn annually without having to pay tax on it, remains the same whether you are self-employed or employed.

The Am contribution of 8% of your pre-tax income is also the same for both employees and self-employed. As self-employed, the AM contribution will automatically be included in your B-tax rates when you prepare your advance tax return.

Tax conditions are individual and the deduction percentage can therefore vary. However, in a normal salaried job, you usually pay between 32-38% tax, while the tax rate for self-employed people is usually between 39-43%.

The Danish tax system is progressive, which means that the more you earn, the more you pay in taxes.

If you are both an employee and self-employed at the same time, there is a good chance that your income will be higher than before and you will most likely have to pay slightly more in taxes.

However, this is based on your income, and by filling out the tax return with your expected income, you can quickly get an overview of this.

4. Your opportunities to easily be a combiner

Once you've made the choice to supplement your income as a combiner, you don't have to jump into the jungle of registering a CVR number, setting up a business account, taking out various insurance policies and finding an accountant.

The days of limited options are (thankfully) over, and today you can choose not to start your own company and still send professional invoices to your customers.

Factofly is your shortcut to a CVR number and ensures that the only thing you need to focus on is making your customers happy.

Factofly works both with unemployment insurance, but also if you need to get paid alongside your "real" job.

Everything is taken care of for you: you are insured while working, you are hired for your project and can act as a private individual. This means, for example, that you don't need to set up a business account either.

You can read more about how Factofly can help you get started in life as a combiner.

5. When are you a combiner?

Being a combiner means that you are both an employee and self-employed at the same time.

You can be considered a combi-employer when you have a permanent employment relationship but also run a self-employed business on the side.

To be considered a combiner, you must meet certain criteria for both roles:

As an employee: You must be in an employment relationship where you work under the direction and control of an employer and receive pay for your work.

As a self-employed person: In addition to being an employee, you must also run your own business. This means, among other things, that you are responsible for the operation and risk and are in charge of your company's finances.

6 Checklist nhen you are a combiner