If you’re considering or already have a second job, it’s essential to understand how to pay the correct amount of tax on a second job. Here’s a comprehensive guide to help you navigate your tax obligations and avoid overpaying or underpaying.
Is it Legal to Have Two Jobs in the UK?
Yes, it’s typically legal to work two jobs in the UK. However, review your primary employment contract, as some employers include clauses restricting additional work, especially if there’s a potential conflict of interest or competition. Additionally, the Working Time Regulations cap the average workweek at 48 hours, unless you voluntarily opt out.
Do You Need to Inform HMRC?
You need to inform HMRC depending on how you’re earning your side income:
- Employed in both jobs: Your second employer will handle tax details, but verify that the tax code is correct.
- Self-employed in one job: Register for Self Assessment to pay tax on self-employed income.
- Self-employed in both jobs: If you’re already registered for Self Assessment, no further action is required.
Tax Code for a Second Job
In the UK, you’re given one Personal Allowance (currently £12,570), which is typically assigned to your main job. For a second job, you’re likely assigned one of these tax codes:
- BR (Basic Rate): 20% tax on all income.
- D0 (Higher Rate): 40% tax on all income.
- D1 (Additional Rate): 45% tax on all income.
If your combined income is under the Personal Allowance, consider contacting HMRC to split the allowance across both jobs.
How Much Tax Will You Pay On Your Second Job
The amount of tax on a second job depends on your total earnings. Here are some examples:
- Above Personal Allowance: A basic rate of 20% on the second job’s income if your primary job is over £12,570.
- Below Personal Allowance: If both jobs combined don’t exceed £12,570, you may not owe tax.
- Higher Tax Bracket: If the second job pushes you into a higher tax bracket, you may pay a mix of 20% and 40% on different portions.
Self-Employed Income from a Second Job
For a self-employed second job, you’ll need to complete a Self Assessment tax return. Any income from self-employment above £1,000 must be declared and is subject to income tax and National Insurance.
Additional Considerations
- Student Loan Repayments: These are calculated per job, not combined, so you may only make repayments from the higher-paying job.
- Tax Refunds: If you overpay due to a BR tax code or other issues, you can request a refund from HMRC at the end of the tax year.
Ensuring Correct Tax Payments
To avoid issues, complete a Starter form with your second employer and verify your tax codes on payslips. If your tax code doesn’t seem correct, contact HMRC or speak to your employer.
National Insurance on a Second Job
While the focus is often on income tax, National Insurance (NI) contributions are just as crucial for second job holders. Generally, NI applies to income from each job separately, meaning if each income reaches the NI threshold, you’ll be paying NI contributions on both. Here’s what to know:
- Class 1 National Insurance: If both jobs pay you above the primary threshold, currently £242 per week, you’ll pay Class 1 contributions at 12% (up to £967 per week), and 2% on income above this.
- Multiple Jobs Below the Threshold: If neither job pays above the threshold, you might avoid NI entirely. However, combining incomes may push you over if either employer makes adjustments.
For those juggling two or more jobs, reviewing pay schedules can help you manage NI costs effectively. You can also apply to HMRC to ensure you’re on the correct NI codes to avoid overpayment, especially if your income fluctuates between jobs.
Pension Contributions and Second Jobs
Having a second job impacts how pensions are managed, too. Workplace pensions are mandatory for eligible employees earning over £10,000, with automatic enrollment applying separately for each job. Here’s what to keep in mind:
- Pension Enrollment for Each Job: If you meet earnings criteria in each role, both employers must enroll you in their workplace pension schemes. This can increase your pension contributions but may also reduce your take-home pay.
- Combining Contributions: You can consolidate pensions later, so if you’re concerned about having several smaller pension pots, it’s possible to merge them.
- Opting Out: While opting out is allowed, it means forfeiting any employer contributions, which can be a significant financial setback over time.
Being proactive about pension planning can help ensure you’re not paying more than necessary into multiple schemes, especially if you’d prefer to increase your contributions in one primary pension fund.
Understanding the Deductions and Allowances with Multiple Jobs
Having multiple jobs can result in an array of deductions and allowances that impact your net income. Here’s a look at the most important considerations:
- Marriage Allowance: If you’re married, you can transfer £1,260 of your personal allowance to your partner (if they earn less than £50,270). This could offset any income tax from your second job.
- Tax Relief on Job Expenses: If either job involves work expenses, such as travel, uniforms, or professional fees, you may be eligible for tax relief. For instance, if your second job requires extra commuting, these costs might be deductible. Keep receipts and records to claim this relief during Self Assessment.
If one of your jobs includes membership fees or professional dues required for employment, such as for a professional body, those fees may also be deductible from taxable income. Speaking with an accountant or using HMRC’s online calculators can clarify if you’re eligible for these.
Practical Steps for Managing Taxes Across Two Jobs
Effectively managing taxes when you have multiple jobs involves a proactive approach. Here’s a step-by-step guide to ensure everything stays on track:
- Complete Your Starter Form Carefully: Inform your second employer about your primary employment status to prevent tax code errors.
- Review Your Tax Codes: Check your tax code when you receive your first payslip for your second job. Codes like BR, D0, or D1 should match your total income situation.
- Keep All Financial Records: This includes payslips, P60s, and receipts for expenses related to both jobs. It will help you accurately file your Self Assessment if needed.
- Use HMRC’s Tax Calculator: Before submitting your Self Assessment, try HMRC’s tax calculators. They can highlight discrepancies or areas where you may be eligible for allowances.
- Plan Ahead for Potential Refunds or Payments: Be prepared to settle any tax differences at the end of the year if you’ve overpaid or underpaid.
Additional Example Scenarios for Second Job Taxes
Providing more scenarios helps illustrate how tax rules apply in different financial situations. Here are three additional cases:
Example 1: Seasonal Work as a Second Job
If you have a primary job and take on seasonal work that doesn’t pay consistently (e.g., a retail position during holidays), you’ll need to monitor your annual income carefully. For instance:
- Primary Income: £18,000 per year
- Seasonal Job Income: £3,000 over three months
Since the second job is temporary and likely set up with a BR code, you might end up overpaying tax. Tracking income carefully and requesting a tax review could lead to a tax refund.
Example 2: Second Job as a Freelance Writer
If your second income comes from freelancing rather than employment, it requires you to report through Self Assessment. For instance:
- Full-Time Job: £40,000 per year
- Freelance Income: £8,000
In this case, your primary income is taxed at the basic rate, but your freelance income may move a portion into the higher rate band. Completing a Self Assessment accurately and paying your tax and National Insurance contributions for freelance work will ensure no surprises.
Example 3: Low-Paying Second Job While Studying
A part-time worker who is also a student might not reach the personal allowance threshold across both jobs. For instance:
- Job 1 (Part-Time): £6,000 annually
- Job 2 (Tutoring): £4,000 annually
Here, income is below the £12,570 allowance, so no tax should be due. However, without notifying HMRC to split the allowance, they might deduct 20% from the tutoring job. Correcting this with HMRC can help avoid overpaying tax.
Seeking Professional Advice and Avoiding Common Tax Mistakes
When juggling multiple jobs, consider consulting a tax advisor or using online resources to avoid costly errors. Here are some mistakes to watch out for:
- Relying Solely on Employers for Tax Code Accuracy: Employers follow HMRC’s instructions, but errors are common. Regularly checking your tax codes is crucial.
- Ignoring Tax Code Errors: If you notice your second job has a 1257L tax code (indicating a full allowance), correct it with HMRC immediately. Over-allowance can lead to unexpected bills.
- Skipping Self Assessment When Required: Even if you’re employed full-time in one job, self-employed side income requires annual tax returns.
Taking time to manage taxes effectively across multiple jobs can prevent unexpected bills, underpayments, and even penalties from HMRC.
Conclusion: Staying on Top of Paying Tax on Your Second Job
Balancing taxes for two jobs can be challenging, but knowing the rules can make a big difference. Whether you’re handling income through multiple employers or mixing self-employment and payroll earnings, being proactive about tax codes, National Insurance, and pension contributions helps reduce unnecessary deductions and keeps your tax responsibilities under control. Regularly reviewing finances, knowing when to contact HMRC, and consulting tax professionals if needed ensures you’re on top of everything without missing key obligations.
Following these steps can ensure that your journey in managing a second job is as seamless and financially rewarding as possible.
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