Tax on a Second Job: All You Need to Know

Determining your tax rate

For the 2024/25 tax year, the basic rate of income tax is 20% on earnings above £12,570 up to £50,270. The higher rate of 40% applies to earnings from £50,271 to £125,140. So, if your first job’s earnings use up all your personal allowance and put you in the basic rate band, you have to pay tax at 20% as your tax on a second job. 

But if your second job pushes your total income into the higher rate band, some of your earnings will be taxed at 40%. This is a really important part to grasp, because if your second job pays you enough to push you over that threshold, but not by very much, it might make the prospect of taking on an extra job a little less appealing.

Completing a self-assessment tax return

If you have multiple jobs and your total income is over £100,000, you’ll need to complete a self-assessment tax return. This is to make sure you’re paying the right amount of tax across all your income. You’ll also need to do a tax return if your second job is self-employed rather than through PAYE. This is the case even if you’re employed and paying tax through PAYE in your main job.

How your main job affects your tax-free allowance

As we’ve seen, it’s your main job that usually gets the benefit of your tax-free personal allowance. The more you earn in your main job, the less tax-free allowance is available for your second job. For example, if you earn £20,000 in your main job, £7,430 of your personal allowance is used up (£20,000 – £12,570). This leaves only £5,140 of your allowance potentially available for tax on a second job – and even then, it depends on your tax code.

How to ensure you’re paying the right amount of tax

With multiple jobs and sources of income, it’s important to ensure your tax affairs are in order. The last thing you want is a shock tax bill because you haven’t paid enough tax throughout the year.

This is where hiring an accountant to help you understand your tax obligations can really pay off. Let’s say your annual tax bill arrives and it’s more than you expected, but you’ve yet to factor in any tax year-end reconciliation or self assessment returns.Your accountant can help with this process, and is the best person to know exactly what you can and cannot claim tax relief on. Tax returns are pivotal when you work a second job, as there could be lots of smaller expenses that you claim for, which will then reduce the tax you need to pay HMRC, and help you make sure that second job income works for you, not against you.

Checking your tax code

Your tax code is key to making sure you’re paying the right amount of tax. You’ll have a separate tax code for each job, and it’s important to check these are correct. Your main job should have a standard tax code like 1257L, which gives you the full tax-free personal allowance. Your tax on a second job will usually have a BR or D0 job tax code, indicating all earnings are taxed at the basic or higher rate with no personal allowance.

Reviewing your personal allowance

If your main job doesn’t use up all your personal allowance, you can ask HMRC to split the allowance between your jobs. This could reduce the amount of tax you pay on your second job. But be careful – if you don’t earn a consistent amount in each job, splitting the allowance could mean you end up underpaying tax. It’s often simpler to have the allowance applied entirely to your main job.

Understanding tax bands and rates

When you have more than one job, it’s important to understand how the tax bands and rates work. For the 2024/25 tax year in England, Wales and Northern Ireland, the bands are:

• Personal allowance: Up to £12,570 – 0%
• Basic rate: £12,571 to £50,270 – 20%
• Higher rate: £50,271 to £125,140 – 40%
• Additional rate: Over £125,140 – 45%

The more you earn, the higher the rate of tax on your top earnings. It’s not as simple as adding up all your incomes and looking at the total – you need to work out how much falls into each band across all your jobs. It can seem complicated, but HMRC’s online tax calculator can help you see how much tax you should be paying in total. And if you’re employed, your employer should make the right deductions through PAYE. 

The key things are to provide your employers with the correct information, keep an eye on your payslips and tax codes, and contact HMRC if you think something isn’t right. A bit of diligence can save a lot of hassle down the line.

Key Takeaway:

Understanding tax on a second job means knowing your personal allowance is mainly for your first job, and any extra income gets taxed from the start. Make sure you check your tax codes and use HMRC’s tools to avoid surprises. A little attention goes a long way in managing multiple incomes.

Common scenarios when working multiple jobs

If you’re juggling multiple jobs, you’re not alone. Plenty of people take on part-time work to supplement their income or pursue a passion project. But here’s the thing – tax on a second job can get a bit tricky.

Part-time jobs and tax

Let’s say you’ve got a part-time gig in addition to your main employment. Your income tax rates will be calculated based on your total income from both jobs. Your part-time job will likely be taxed at the basic rate (20%) or higher rate (40%), depending on your total earnings. It’s crucial to monitor your income and tax codes to ensure you’re not overpaying or underpaying tax.

How PAYE coding notices work

When you start a second job, your employer will provide HMRC with details of your new employment. HMRC will then send you a  PAYE Coding Notice, which outlines your tax code for each job. This notice will help you understand how your personal allowance is being applied and how much tax you’ll pay on your second job.

Calculating tax when working multiple jobs

Let’s break it down with an example. Say you’re paid £150 per week in your first job and £100 per week in your second job. No tax will be paid on the first position (as it’s under your tax-free personal allowance), but the second job will be taxed at 20%. Once you understand how the PAYE system worked and keep an eye on your coding notices, this becomes much more manageable.

What to do if you’ve overpaid or underpaid tax

Despite your best efforts, sometimes you might end up paying extra tax or too little tax when working multiple jobs. Don’t panic – there are steps you can take to sort it out.

Completing a starter checklist

When starting a new job, you’ll be asked to complete a Starter Checklist, which helps your employer determine the correct tax code to use. Be sure to complete this accurately, indicating that you have another job, to avoid overpaying or underpaying tax. If you realize you’ve made a mistake, inform your employer and contact HMRC to rectify the issue.

Understanding year-end reconciliation

At the end of the tax year, HMRC will perform a reconciliation to ensure you’ve paid the correct amount of tax across all your jobs. If you’ve overpaid, you’ll receive a tax refund. If you’ve underpaid, you’ll need to pay the outstanding amount, either through a lump sum payment or by adjusting your tax code for the following tax year.

What to do if you’ve gone over the income threshold

If your combined income from all jobs pushes you into a higher tax bracket, you may need to pay additional tax. In this case, contact HMRC to discuss your options. They may suggest completing a Self-Assessment tax return or adjusting your tax code to ensure you pay the correct amount of tax. The key is to stay on top of your tax situation and address any issues as soon as they arise.

Tips for managing tax when working multiple jobs

Navigating taxes with multiple jobs can be challenging, but with a bit of organization and know-how, you can stay on top of it. Here are some tips:

1. Keep track of your total earnings from all jobs to better understand your tax liability.

2. Regularly review your pay slips and tax codes to ensure you’re paying the right amount of tax. If you see the standard tax code (1257L for 2023/24) on your second job, contact HMRC to ensure you’re not underpaying tax.

3. Inform HMRC and your employers about any changes in your employment situation. If your second job becomes your main employment, make sure your tax-free pay and National Insurance contributions are adjusted accordingly.

4. Consider using a tax calculator or seeking advice from a tax professional to help manage your tax when working multiple jobs. If you need reliable assistance with your tax returns, access our tax compliance services at Sleek. Our experts can help you understand how your taxes, and help you file your returns correctly.

5. If you have the opportunity to pay into a workplace pension through your second job, keep hold of the details, as this can help reduce your overall tax liability. By staying organized and communicating with HMRC and your employers, you can ensure you’re paying the correct amount of tax and avoid any surprises down the line. A little bit of effort goes a long way when it comes to managing your taxes with multiple jobs.

🥸 Key Takeaway:

Juggling multiple jobs? Stay on top of your taxes by keeping an eye on total earnings, reviewing tax codes regularly, and communicating any job changes to HMRC. A bit of organisation can prevent overpaying or underpaying tax.

Conclusion

Well, there you have it – the lowdown on tax on a second job. It might seem daunting at first, but once you get your head around personal allowances, tax codes, and how to manage your tax efficiently, you’ll be a tax-savvy second jobber in no time.

Arm yourself with knowledge about how tax on a second job works, and you’ll be empowered to make smart choices. You’ll sidestep unexpected pitfalls and hang onto more of the money you’ve worked so hard to earn.

If you require professional assistance with accounting and tax compliance services – reach out to us on Sleek. Our friendly experts will help you fulfil your tax requirements and file your tax returns with ease.