There are currently more than 1.1m people working second jobs in the UK, according to ONS data, with around 400,000 of these aged 50 and over, but if you’re one of them, working out how much tax you have to pay isn’t always easy.
The pandemic has put a strain on many people’s finances, with more people taking on second jobs to make ends meet.
Whether you already have two jobs, are considering taking another one on, or are starting your own business to supplement your income, it is important to know your rights and responsibilities when it comes to paying tax.
Here’s what you need to know.
- Second job tax considerations
- What else do I need to check before getting a second job?
Second job tax considerations
Having two or more jobs impacts how your taxes are calculated. Errors can happen in your payroll or self assessment, so it is useful to understand how the system works, how your Income Tax and National Insurance contributions are affected and roughly how much you should be paying.
Second jobs and Income Tax
Whether you have one job or two, HMRC views your income as a single figure, made up of the total earnings from each job and applies Income Tax to the overall figure.
If you are 18 and over, you are entitled to earn up to £12,570 tax free (in the current 2021-22 tax year). This is known as your personal allowance, which you only receive once against all of your income. After this, you are charged different rates of tax depending on how much you earn, shown below.
|Band||Taxable income||Tax rate|
|Personal Allowance||Up to £12,570||0%|
|Basic rate||£12,571 to £50,270||20%*|
|Higher rate||£50,271 to £150,000||40%|
|Additional rate||over £150,000||45%|
*The Government has announced plans to cut the basic rate by a percentage point to 19% by 2024.
To work out how much Income Tax you will pay, you will need to work out how much of your earnings will fall into each band. So, for example, if you are an employee for both of your jobs and are earning £31,000 a year in job one and £20,000 a year in job two your combined income would be £51,000, with the breakdown looking roughly like this:
|Taxable amount||Portion of wage||Tax rate||Total|
|Personal Allowance||£0 – £12,570||£12,570||Tax free||£0|
|Basic Rate||£12,571 – £50,270||£37,700||20%||£7,540|
|Higher Rate||£50,270 – £51,000||£730||40%||£292|
If the amount you are earning from your two jobs is over £12,570, HMRC will usually view your higher earning job as your main income, and your other job as a supplementary income. Your personal allowance will be allocated to your main income and your second job will usually be taxed at the basic rate of 20%.
The tax codes that appear on your payslips will usually be 1257L on your primary income and BR (basic rate), D0 or D1 on your second job.
If the amount you earn in your primary job, or both of your jobs, is less than the personal allowance, you can request HMRC to split your personal allowance between your jobs. This will often involve sending P60s, which you’ll receive from your employers at the end of the tax year, from both of your jobs.
To make sure you are allocated the right tax codes and are paying the right amount of tax, when you start your second job, complete HMRC’s new starter checklist from your new employer. This will help HMRC allocate the right tax code.
Income Tax on self-employed second jobs
If you are self-employed as your second job, the thresholds for Income Tax and the processes you need to go through are slightly different. You will not have a tax code for your second job, but you will need to register for and complete a Self Assessment tax return.
While you are still entitled to the personal allowance limit, you should also be eligible for the trading allowance, which means the first £1,000 of your self-employed earnings are tax free. You may also have a number of allowable expenses which can be deducted from your income before tax.
So to give you an example, if you earned £31,000 a year in your first job (as an employee of a company) and £20,000 through your self-employed work, with £1,000 of allowable expenses, your Income Tax calculations would look something like this:
|Taxable amount||Portion of wage||Tax rate||Total|
|Personal Allowance||£0 – £12,570||£12,570||Tax free||£0|
|Basic Rate||£12,571 – £49,000||£36,430||20%||£7,286|
Second jobs and National Insurance
Unlike Income Tax, National Insurance is applied to each of your jobs individually, rather than your total income, as long as they are with different employers. Making sure you are paying National Insurance when you are employed is important as your contributions allow you to qualify for certain benefits and the State Pension.
There are different types of National Insurance, known as classes, and the type you will pay depends on how much you earn and whether you are self-employed or employed, or both.
|National Insurance class||Who pays|
|Class 1||Payable by employees earning more than £184 a week and under State Pension age. They are automatically deducted by your employer|
|Class 1A or 1B||Employers pay these directly on their employee’s expenses or benefits|
|Class 2||Payable by self-employed people earning profits of £6,515 or more a year. If you’re earning less than this, you can choose to pay voluntary contributions to fill or avoid gaps in your National Insurance record|
|Class 3||These are voluntary contributions – you can pay them to fill or avoid gaps in your National Insurance record|
|Class 4||Payable by self-employed people earning profits of £9,569 or more a year|
So, if you are an employee for both of your jobs, your National Insurance payments will be calculated and deducted for you and you will fall into Class 1.
If you are an employee and self-employed, your employer will deduct your Class 1 National Insurance from your wages, and you may have to pay Class 2 and 4 National Insurance for your self-employed work. How much you pay depends on your combined wages and your self-employed work. HM Revenue and Customs (HMRC) will let you know how much National Insurance is due after you’ve filed your self assessment tax return.
Most people between 16 and State Pension Age will start paying 12% National Insurance for any earnings over £184 per week (2021-22), for each job they have.
If the income for either of your jobs is less than £184 per week, you will not have to pay National Insurance contributions on that job.
For example, if in job one you earn £197 a week and in job two you earn £120 a week, you will only need to pay 12% National Insurance Contributions on job one. In the second job there are no National Insurance Contributions payable as your earnings from that job are less than £184 a week. Your National Insurance Contributions would therefore work out at £1.56 a week (12% of £197 minus £184).
What changes are planned for National Insurance Contributions this year?
There are a number of changes to National Insurance scheduled for the coming year, which will alter the way you might pay National Insurance. These changes include:
The Primary Threshold and the Lower Profits Limit is set to increase by £3,000 by July. An increase was already planned for April this year, raising the thresholds from £9,568 a year to £9,880, but in the Spring Statement, the Chancellor of the Exchequer, Rishi Sunak, announced that in addition to this, there would be a further rise to £12,570 that would come into effect in July. This essentially means that from July, you will be able to earn up to £1,047 a month in each of your jobs before you have to start paying National Insurance.
As part of the new Health and Social Care Levy, National Insurance Contributions are increasing by 1.25 percentage points a year from April 2022. This means that Class 1 National Insurance contributions will rise to 13.25% and Class 4 contributions to 10.25%. If you are self-employed, there is no change to Class 2 contributions.
Working and claiming the State Pension
Reaching State Pension age doesn’t mean you have to stop working if you don’t want to or can’t afford to. You are still able to work while claiming your State Pension, and can defer starting your pension, which will mean you get larger weekly payments when you do begin to take it. You can find out more about this in our article Should you defer your State Pension?
Once you reach State Pension age, you no longer need to pay National Insurance contributions. This should be noted by your employer if you are an employee and they will stop being deducted from your wages. However, if you are self-employed, you will continue to pay Class 4 contributions. You will only stop paying Class 4 contributions at the end of the tax year in which you reach State Pension age.
Tax Credits and Benefits
If you currently receive tax credits or benefits, getting a second job may affect the amount you are eligible for. To see how getting a second job might impact what you receive, the government suggests using one of the following benefits calculators: Policy in Practice, entitledto or Turn2us.
As with any changes to your lifestyle when receiving benefits, it is essential that you notify the Jobcentre Plus and the HMRC of these changes. The amount you receive may increase or decrease depending on your circumstances, and it is important to notify them as soon as possible to prevent you from having to repay them or miss out on money.
What else do I need to check before getting a second job?
As well as working out your tax and National Insurance position, if you are thinking about getting a second job there are a few other things you’ll need to check first:
Will your current employer allow you to work a second job?
When you started work with your current employer, you will have signed a contract of employment with them. Within some contracts, you may have been asked to agree that you will not have another job (paid or unpaid) whilst employed with them, unless explicitly agreed in writing by your manager. This may be for a number of reasons, but is usually because:
- There might be a conflict of interest with your second workplace. For example, working for a rival company
- Your second job might bring your employer into disrepute. Your second place of work may not be a company that your current employer would wish to be associated with.
It’s best to check your contract to see if you have any clauses like this and speak to your manager or Human Resources department about your plans before you start your job hunt.
Working time regulations
Your employers may be concerned that in working two jobs, you will breach working time regulations. Under this law, you are only allowed to work 48 hours a week over any employment you have. For some people, working less than 48 hours a week isn’t financially viable and you can choose to work more hours by opting out of the regulation. To do this, you should sign an opt out agreement with both of your employers.
You should only sign this agreement if you want to and should not feel pressured into doing so. Another option is to work with both employers to bring your hours down to 48 hours. Your employers are required to take reasonable steps to uphold the working time regulations so should support this request.
You alone can determine whether you are happy to work more than 48 hours a week and so if you are self-employed and setting your own schedule, these limitations do not apply.
Minimum pay requirements
Whatever the job, you should be paid at least £8.91 per hour which is the National Minimum Wage. Making sure you are being paid the legal minimum could make a difference to whether you need a second job or not. For help and advice on how to do this, visit Citizens Advice.
Are you considering a second job, or thinking about starting your own business or have you already done so? We’d be interested to hear from you. Join the money discussion on the Rest Less community or leave a comment below.