Understanding Second Job Tax Implications

Currently, over 1.2 million individuals in the UK hold a second job. Before embarking on additional employment, it's crucial to grasp the tax implications.

How Income Tax Works for Second Jobs

As an employee in a second job, income tax is deducted through the Pay As You Earn (PAYE) system. However, if you have exhausted your personal allowance (£12,570) in your primary job, it may appear that you are paying higher taxes.

For side hustles or self-employment, the trading allowance allows you to earn an additional £1,000 tax-free. Beyond this amount, self-assessment tax returns must be filed annually to declare earnings and calculate taxes.

Tax Calculation

HMRC considers your overall income from both jobs. Your second employer may not have information about your first job's income, which could lead to incorrect taxation. It's essential to disclose your earnings to ensure accurate taxation.

Starter Checklist

Your new employer will request a "starter checklist" where you provide details of your first job's income. This ensures a correct tax code. Your personal allowance is typically applied to your primary job. However, if it pays less than £12,570, you can apply to split it between jobs (subject to HMRC approval).

Tax Codes

Verify your tax code. For earnings above £12,570, the primary job code is likely 1257L. For the second job, the codes are B1 (basic rate), D0 (higher rate), or D1 (additional rate).

Workplace Pensions

If you earn £10,000 or more in a second job, you may qualify for auto-enrolment into a workplace pension. Consider the potential benefits, but be mindful of multiple pension pots and potential pension loss if you don't qualify for auto-enrolment in both jobs.

Benefits

Additional income may impact benefits such as universal credit. You should inform HMRC about any changes in income, which will be reported by your employer.

Informing HMRC

For employed second jobs, employers will report to HMRC on your behalf. If you pay emergency tax, you can notify HMRC directly using their online tool. Self-employed individuals must inform HMRC and file self-assessment tax returns if earnings exceed £1,000 per year.