Second jobs – how are they taxed

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It is surprising how often people get the wrong impression of how tax will affect a second job.  Also those that listen to the tax advice of their colleagues may find themselves led up the garden path.

The first distinction we need to make is between a secondary income coming from employment and one coming from self-employment.

Examples of a second employment might be evening work in a bar or as a member of the Territorial Army or Naval Reserve.

An example of a self-employed source of income could be a commission agency from catalogue sales.

Secondary employment should be taxed at the basic rate of tax – that is 20% tax (in 2011/12)  taken off all your pay before you get it.  The code BR (for Basic Rate) should be on your payslip.  If you are a 40% taxpayer then you should ask the tax office to arrange that 40% tax be deducted (this code is D0).  This avoids you owing tax at the end of the year.

The reason most second jobs should be taxed at 20% is that you will have received your normal tax allowances in your code at your main job.  You cannot have those tax allowances more than once.

People who have two jobs with low earnings at each (say £3,000 each) can ask the tax office to have their allowances split.  Thus a special tax code can be issued to each employer.  This could mean you not having tax taken off at either job.  Doing this could prevent you having to claim back tax at the end of each year.

If your secondary income is from self-employment then different rules apply.  For HMRC to know what money you are making you will need to register as self-employed.  This must be done within 3 months of starting.  Then in April each year you will be sent a Tax Return which you must fill in – showing both your employment earnings and your business profit or loss.

If your business income is low then HMRC might decide just to ask you every year or two how much you made.  They could then collect the tax via your tax code and save you having to do a full Tax Return.
Once HMRC processes a Tax Return then you will pay your tax by cheque on certain dates.  Tax bills below £2,000 can be deducted from your employment tax code – but only if you send in your Tax Return by the deadline shown on the front of the Return.
If you are worried about your second income then you should contact a tax office or a tax adviser.  To do nothing may simply be storing up a tax bill which will settle on your doorstep in years to come.

Huston’s Hint

Second jobs need to be taxed at 20% (the basic rate of tax) unless the tax office makes you up a special code.  If you are not paying tax at the second job this could end up biting both you and your employer.