Tax On Second Job – How Much to Pay

Check Your Employment Contract

If you are doing two jobs then ensure that you do not spend too much on paying your taxes. First check that are you authorized for doing a second job? Or if your current employer has no issue in you doing a second job. Also check the employment contract. If your employment contract permits you than you can start a second job. You also need to check that if a second job is a good option. Before starting your second job, ensure that you are getting minimum wages for the second job. A proper contract should be formed. If you are doing two jobs than you need to check that your code of PAYE is correct for each job. The reason for this is because the system will be considered one job as your main source of income. The second job is considered as secondary.

How tax officials calculate the taxable income?

The tax official calculate tax on one job as your main source of income. Your personal allowance is £12,500. Before paying the income tax, this is the amount you earn from your first job. Tax officials also takes into consideration your salary package for the purpose of tax calculation on both jobs. If in your first job you are getting the amount below £12,500 then there is no tax on the first job. But if you are earning more than £100 per week in the second job than you need to pay 20% tax. When the combined wages from your two jobs is less than the personal allowance then you end up paying more taxes. But this does not mean that you are paying correct amount of tax. Because the reason for this is PAYE process failure by HMRC, employer, employee or certain complications in the tax system.

How to evade overpaying or underpaying tax?

Before starting your second job, pick P46 starter form your new employer. In this form fill out all of your employment details and send it to HMRC. You also need to watch your tax code. The code of your second job is DO or BR after the number. Also check the amount you need to pay for your pension. Remember that person allowance till £12,500 is non-taxable per year if you are less than 65 years. This is applicable for the tax year 2019-20. This allowance which is non-taxable will only apply to one of the two jobs. When you used this allowance, your remaining income from the two jobs will be taxed as per the rules. The same rule applies when you have one job and one pension or more than one pension.

Minimum Earnings

If you have told tax officials that your total salary is less than £37,500. You need to remember that for tax year 2019-20, the earnings threshold for the minimum tax bracket is nearly £50,000. If your combined income is less than you will have to pay income tax at a rate around 20% for the tax year 2019-20. You need to remember that you will have to contribute for the National insurance which you need to pay at a rate around 12% if your total income is more than £166 every week. If you have two jobs in your hands and your taxable income from salary (after personal allowance deduction) is more than £36,000 in 2019-20 than you pay tax at a higher rate. This signifies that deduction of income tax at basic rate on your second job is not enough. You required to contact HMRC for issue of right codes.

PAYE with 2 pensions or jobs

To tackle this situation, first see that is you are given tax free wages for both jobs in the PAYE code. Inform the tax office about your second job or pension. To make changes in your tax records, it will take some time. So that the HMRC will identify the mistake and sends you the bill for the underpayment of tax. If you are doing two jobs, and your income is less than £12,500 (personal allowance) for the tax year 2019-20, then you don’t need to pay one job your entire tax-free salary. If you used a BR code for your second pension or employment than you need to pay more tax.

How to solve this issue?

Inform income tax office to properly divide your personal allowance for the first and the second job. But do this only when salary from both of your jobs are predictable and stable. You also require to review the position on a regular basis for properly division of person allowance for both the jobs. Or you can also wait and inform HMRC for the issue of refund till the next year. The other option is that you can also wait till the HMRC will perform the year end-reconciliation of the tax year of salary returns. You can also receive the repayment and tax calculation receipt after the tax year ends. Make a photocopy of P60 form before sending it to the HMRC.

Getting the state pension

If you regularly receive the pension from the state, and you have one job and one pension then your tax code will have certain complications. Therefore, no any income tax is deducted from your source of state pension even it comes under taxable income. The reason for this is that the Department of the work and pensions do not consider PAYE for the state pension. From the tax free personal allowance, a certain amount of your state pension is deducted. Therefore, you have less tax-free wages which are available as income source. The main source of income is now less tax free. So, that the occupation or employment pension has to bear the extra tax which is due on the pension send by the state. When you start a second job than you wish to reach your yearly saving goal or want to pay your loan amount. Might be the income tax is not in your mind on the second job. But be alert because you need to pay the income tax when the income from your both jobs is under the taxable slab for the tax year 2019-20.

Working as an independent contractor or freelancer

Things will be more complicated when you are doing work as a freelancer or independent contractor. Because your first responsibility is pay your taxes on the right time and regular throughout the year. As you are working independently your responsibility is increased. You have to determine yourself or you can also take the help of some tax practitioners that how much tax you have to pay for a particular tax year. Apart from the income tax you also require to pay self-employment taxes. Your tax slab is modified as your income is increased now. You need to make best use of your second job. Because you will do a second job for only certain years as your age is increasing every year, you will have to carefully manages your income and expenditure, as well as the investments. Survival becomes difficult if you are unemployed or earn less salary. Therefore, carefully do your second job and pay the taxes as per the rules.

About the author

Sumit Agarwal
Sumit Agarwal (ACMA ACA India), the Managing partner of dns accountants is a highly respected accountant with expertise in helping owner-managed businesses.