You won’t exaggerate if you say that lots of people in the UK are living from hand to mouth nowadays. The cost of living is rising fastest in nearly 40 years, with the national minimum wage being left further and further behind. What are people supposed to do? Obviously, look for extra sources of income.
One of those is a second job. The research by Royal London has shown that the number of people who had to turn to a second job is highly likely to have already exceeded the threshold of 5 million across the whole United Kingdom. A further 30% are ready to do the same if costs continue to rise at this pace.
So, if you are one of those considering an option of an additional income source, you might be interested in learning how much tax you will be forced to pay. We explain it below.
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Taking an extra job may have an impact on your tax, National Insurance, and benefit measurements. Thoroughly researching how the system works first will help you avoid any harm being done to your finances when paying tax for your income.
If you want to get to grips with the taxation system in the UK, just go to the HMRC, or Her Majesty’s Revenue and Customs official website. It provides comprehensive guidelines on a wide range of topics related to taxation, customs, and other financial matters.
The guidelines that would be helpful on our topic:
There is a list of incomes to be taxed according to GOV.UK:
One doesn’t have to pay tax on things like:
The full list of taxable and non-taxable items can be found on GOV.UK.
Now, in the juiciest part of our article, we explain how tax rates and measurements for the second job in the UK work.
The tax you must pay depends on how much you earn. The good news is that incomes under £12,570 a year are free from Income Tax. It’s called a tax-free Personal Allowance. Everything that goes beyond this figure is charged with tax, also depending on the amount of earnings:
Personal Allowance can be given only once for those planning on having two jobs or more. In this case, the other job is set as ‘Basic rate’ or BR by default, with a tax rate of 20%. That’s why it’s more reasonable to apply Personal Allowance to the job that pays you the most.
Scenario 1:
Tip: It’s reasonable to apply your Personal Allowance to your second/new job and make it the main one. Since the total income stands at £32,000, it’s within the threshold of £50,270. The tax code for the second/new job will be 1257L, and the first job tax code is BR.
Tax measurements:
Scenario 2:
Tip: Personal Allowance is applied to your first job, as it brings more money. The remaining amount within the £50,270 threshold is taxed at 20%. Since the total annual income is £58,500, the tax code for cash over the £50,270 threshold will be D0, a Higher rate (40%).
Tax measurements:
Scenario 3: If a person has two jobs with a total income of less than £12,570, they can ask HMRC to split their personal allowance across both jobs, thus paying 0% tax on either. Contacting HMRC is mandatory; otherwise, their second job will be automatically allocated with the BR tax code of 20%.
Paying or not paying National Insurance on your second job depends on how much you make per week. According to Class 1 National Insurance contributions for the 2023-2024 tax year:
National Insurance is calculated on a job-by-job basis, not the total weekly income. If one of your jobs (whatever you call it, first or second) brings you less than £242 a week, you don’t pay National Insurance contributions for it. If both jobs pay you more than £242 a week, you must pay National Insurance two times for each.
The tax rates in the UK are pretty impressive. Still, luckily, there are some ways to save tax-related money: claiming tax relief for job-related expenses, claiming a tax refund, or applying for Universal Credit.
If you need to buy equipment for your second job, you can claim capital allowance, also called annual investment allowance. It’s applied to computers and other devices necessary for work, business mileage, fuel costs, and even small items that last less than two years (uniforms or small tools). The primary condition of this opportunity is no significant private use.
Sometimes, we can pay too much tax, either by mistake or we don’t know how the system works well enough. In this case, there is an option to claim some amount of our money back. The categories that allow claiming tax refunds include:
Until recently, parents, people on low incomes, and people with disabilities were entitled to government payments called tax credits to help them cope with day-to-day living expenses. Those included:
Starting from April 2023, tax credits have been gradually replaced with Universal Credit (UC). According to HMRC, it’s impossible to claim tax credits anymore if you have never done it before. Existing tax credit claimants are still eligible for their tax credit annual renewal.
When you are about to start your second job, just let HMRC know about your circumstances change. Professional assistance with all second-job arrangements provided by specialists at HMRC will help you save your time and nerve cells.
When you quit a job, you get a P45 form, which shows how much tax you’ve paid on your salary so far in the tax year. When you get a new job, you give this form to your new employer. When getting a second job, you don’t have this form because you never quit your first workplace; however, you still have to provide data on your tax history to your second/new employer. Normally, you’ll be asked to fill in a ‘starter checklist’ (also known as P46, with income and benefits information) based on which your second employer works out your correct tax code.
P60 is a document automatically given to every employee paid through PAYE at the end of a tax year. It shows their salary, tax payments, and National Insurance Contributions. If you have two or more jobs, there is a separate P60 document for each tax year. This paper proved to be an indispensable tool in situations when you want to claim a tax refund, apply for tax credits, or prove something to HRMC.
If you are determined to deal with reporting and paying income tax on your own, take a look at the most widespread mistakes when it comes to second-job income tax measurements:
