Sole Trader to Employee - Tax query

Jimeji

I've been working as a Sole Trader from Nov 24 - Dec 25. Have paid 24/25 tax bill, have paid advance on 25/26 and have saved remaining estimated tax ready for tax return in April 26 for the 25/26 tax bill.

In Jan 26 started a full-time role and now employed. January payslip - paid regular amount of tax and NI. Have just received February payslip and the tax has now been refunded, and I have consequently paid no tax this year.

I checked my PAYE tax summary and it was showing an estimated income for the 25/26 as approx £8k. This is the roughly the total I have already been paid in the 2 months, so with the March payslip the total will likely be £12k. (I have since updated the estimate on the account)

Have they refunded the tax because I'm likely to be under the £12.5 tax threshold for 25/26? But I have earned much more as a sole trader which I will report in April, as soon as I can do my self assessment.

Very confused by this, any help will be very welcome!

Dazed_and_C0nfused

https://forums.moneysavingexpert.com/discussion/6656952/sole-trader-to-employee-tax-query

It will be because only your PAYE income is being considered at this point in time.

You could think of it as an interest free loan from HMRC!

Providing you include the employment income on your (final?) Self Assessment return, for 2025/26, it will all come out in the wash on your Self Assessment calculation.

If you are now on the emergency tax code (1257L) then you may pay no tax in March but will start paying tax again from the first payday after 5 April 2026.

Jimeji

https://forums.moneysavingexpert.com/discussion/comment/81899751#Comment_81899751

OK thanks, very helpful advice. So when I submit my tax return be sure to include employment income as well as sole trader income. Understood.

In the meantime I'll try not to spend it all!

Will the tax be paid back in a tax bill, due January 2027, or will they claw it back through PAYE tax?

Dazed_and_C0nfused

https://forums.moneysavingexpert.com/discussion/comment/81900088#Comment_81900088

That depends, partly on you, partly on the amount owed and partly how much your PAYE earnings will be.

Lots of people just prefer to pay the Self Assessment bill (anything over and above your POA to be paid by January 2027).

But if you file your return by 30 December and answer a question near the end of the return you can choose to have that January 2027 amount included in your 2027/28 tax code (as longs it's less than £3000), effectively another interest free loan from HMRC.

The only downside to that is it can sometimes make your tax seem a lot more complicated and people have been known to mistakenly think they are paying something twice. When they aren't.

Jimeji

https://forums.moneysavingexpert.com/discussion/comment/81900104#Comment_81900104

Very helpful, thank you.

I think the total amount of tax owed will likely be around 1,600gbp, so not an earth shattering amount. Happy to add it to the January 2027 tax bill for ease.