Currently, there are over 1.1m people who are working for a second job in the UK (ONS Data). If you’re one of them or going to be on the list in the future, figuring out the second job tax might be confusing. Let’s see how your second job affects your tax bill!
Financial strains during the pandemic have forced many people to go for a second job to meet their financial needs. Whether you’re running your own business or employed somewhere, you need to make sure that you pay the right tax when you are doing a second job.
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How much Income Tax you need to pay on your Second Job?
You have to pay income tax whether it’s your first job and second. However, you don’t need to pay income tax on your personal allowance that is £12,570 (2021/22 tax year). You can only get a single personal allowance, so it’s recommendable to have it for the job that is paying you the most. If each job is less than your personal allowance (PA) of £12,570, you can split your personal allowance.
Example 1: Two jobs above Personal Allowance
Adam has two jobs. From the first job he earns £15,000 and the second job pays him £5000. Here, the personal allowance only applies to the first job that is £15,000 (above the personal allowance of £12,570). As a resident of England, Wales or Northern Ireland, he has to pay income tax at the basic rate of 20% on £2430 the income that is above the personal allowance.
He’ll not be paying any second job tax (£5000) that is below the personal allowance.
Example 2: Two jobs below Personal Allowance
Lily works two jobs. From her first job, she gets £11,000 annually and the second job pays her £8,000. Both jobs pay her below the personal allowance, so she can split her allowance to both. She can contact HMRC to transfer the £1500 (unused allowance) from her first job to the second job or can claim a refund from HMRC at the end of the tax year.
Splitting the personal allowance into both jobs is only possible where your income is stable.
You need to check your tax codes to pay the right amount of tax and avoid extra charges or interest.
Example 3: If your combined earning is above £50,000
Jack’s main job pays him £45,000 in a year and he’s the second job from which he gets £12,000 in a year. It makes a total of £57,000. His personal allowance is going to be applied to his main job. Unless Jack informs HMRC this, his second job tax is going to be taxed at the Basic Rate, when a portion of it needs to be taxed at a higher rate.
In case of not informing HMRC, an additional tax will be levied by HMRC at the end of the tax year.
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How much National Insurance you need to pay for your second job?
If your earning is over £184 a week (2021/22 tax year), you need to pay Class 1 National Insurance Contributions (NICs). If your weekly earning is above this threshold on both jobs, you need to pay NICs on both.
Pensions on the Second Job
You might be paying another pension contribution on your second job but you should record all the pensions you’re paying into. You can combine your small pension on your second job with the large pension.
In case you receive state pension or private or occupational pension and you’re employed, you might need to pay tax on it. You need to make sure that you’re paying the accurate amount of tax with the right tax code.
Second Job Tax as a Self-Employed
If you’re operating a business along with your main job, you need to:
- Do registration as self-employed with HMRC
- File Self Assessment tax return by 31 January on an annual basis
- Pay your tax and NICs
You should note that there is no need for any tax code as you pay tax through self-assessment when you’re Self-Employed.
If you need help regarding the second job taxes or self-employment taxes, Cheap accountants in London are here for your help. We’d love to hear your queries and provide you with expert financial advice to save you from extra taxes.
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Disclaimer: This blog is intended for the general understanding of the second job taxes.