If you work full-time, you’re on the government’s PAYE system. This takes tax at source from your employer and allows them to pay you.
But Income Tax on a second job needs to be factored in too. It’s the law – no one can escape it, whether you’re just starting out or are an experienced contractor, freelancer or employee for two companies.
Additional earnings pile on top of what you currently earn. That means it’s taken as a single earning package and is liable for the same tax rules.
So, keep reading to figure out paying tax on a second job in a variety of situations.
How Much Tax Do You Pay On A Second Job?
Mostly, the rates are exactly the same as you pay for primary employment. The basic rate (currently 20% on taxable income up to £50,000 as of 2019/20) applies for a second job too, just like higher and additional thresholds.
So when you ask ‘do I pay more tax on a second job?’, the answer is no. But it can increase the rate you’re liable for overall.
You combine the income from both jobs, and pay tax on the whole. The Personal Tax Allowance 2019/20 – the annual tax-free income limit for everyone – only counts for the job you earn the most from.
You’re entitled to split the Personal Allowance between both jobs if you want to, providing they are stable. Most people, though, reserve it for their primary earning role.
For example, you might be making £1,200 a month from main employment and £600 as a supplement elsewhere.
The monthly Personal Tax Allowance 2019/20 (set at £1,042) won’t be taxed at all, whilst the remaining £138 will be taxed at 20% (or £27.60). Meanwhile, the full £600 from your second job is taxed at 20% (or £120), leaving you with a bill of £147.60.
On the other hand, a secondary income can tip you over into the higher or additional-rate earning group. Income Tax on a second job would mean you pay 40% on anything over £50,000, or 45% on earnings beyond the £150,000 mark.
Freelancing, Contracting And Sole Trading Responsibilities
Paying tax on a second job isn’t difficult if you’re directly employed – in other words, on the PAYE system again. However, if you’re working independently, you must declare and evidence tax through your Self Assessment.
For many, this may be a new experience. Contractors, freelancers and sole traders have to stay on top of all their earnings made between a tax period (6th April one year to 5th April the following year) and pay their calculated tax bill by midnight on 31st January the year after that.
To start, you’ll need three things:
- A tax code supplied by HMRC
- Receipts and invoices that match with dated bank statements
- Digital tax software to make the whole process more seamless, whilst saving on accountancy fees
PAYE employees on a second earnings stream need to complete a starter checklist (formerly a P46 form) for their new employer, but freelancers and contractors don’t. What is the same regardless of the camp you fall in, however, is how accurate your declarations and tax codes need to be.
Your tax code will depend on the rate you’re paying. So, for instance, being in the basic-rate bracket will give you the letters BR (or CBR and SBR if you live in Wales or Scotland) on the end of your code, whilst higher- and additional-rate earners will have D0 (CD0 or SD0) or D1 (CD1 or SD1) respectively.
This code is used on your Self Assessment return. If HMRC is aware that you’re paying tax on a second job and that your overall income pushes you into a different tax band, this will be reflected in the letters used.
If you believe your tax code to be incorrect, you should contact HMRC as soon as possible.
Telling HMRC About Your Income Change
It’s vital that HMRC knows you’ve taken up a second job. If they don’t, you could end up paying more or less tax than you should be.
Your employers must provide the starter checklist we discussed in our last section. This is then sent to HMRC on your behalf, after you check the relevant tax codes and ensure they line up with your earning status.
Sole traders, on the other hand, have to ask for their Unique Tax Reference (UTR) number which is sent out – usually within 10 working days – after you register for Self Assessment online. You’ll then use it to log in to the system’s online tax account, where data is stored.
Registration has to occur within 28 days of receiving the code. You’ll create a user ID and password too, which is required for login before the Self Assessment deadline each year.
‘Do I pay more tax on a second job?’ Hopefully we have answered that query with a good introduction, which you can expand upon with more research, tax advice, and a close examination of your finances.
In summary, we’ve learned that second jobs are taxed, but to the same standards as your primary employment. They do not count for Personal Allowance unless you ask HMRC to split that between roles, yet they can and do raise tax bills overall.
Freelancers, contractors and sole traders must resolve their own secondary income outside of PAYE. You need the right tax codes, as well as a tool to help you log, prove and submit documents related to your taxes.
Otherwise, if you’re directly employed, it’s your employer’s job to tax income at source.
Follow the government’s help page for further advice. How much tax you pay on a second job is fairly easy to manage with the right assistance and digital tools.
Our mobile tax software is helping thousands of self-employed and secondary income earners across the UK. We get rid of accounting fees and give you a smart, evolving picture of your tax responsibilities, updated in real time. Photograph receipts, track tax payments, and submit your Self Assessment directly to HMRC. Get started today for better financial support.
Last updated on 6th June 2019.