As long as your earnings exceed a certain limit, you will be required to pay income tax and make national insurance contributions. Through this article, we aim to learn whether national insurance contributions are due on second jobs. Additionally, we will also explore if someone who is unemployed has to make NIC contributions if income tax is due on a second job and if yes, at what rate do you have to pay it.

Do You Pay National Insurance On Second Job?

Yes, you will pay national insurance on a second job if your earnings are more than £184. 

Unlike income tax which allows for a single tax-free allowance for salaried individuals, in the case of national insurance, there is a new limit for each job, as long as the two jobs are with separate employers.

This means that if you earn more than £184 per week at each job you are liable to make Class 1 national insurance contributions for the year. 

However, if someone falls into the following categories, they can defer making Class 1 contributions for national insurance:

  • paying Class 1 National Insurance with more than one employer
  • earning £967 or more per week from one job over the tax year
  • earning £1,151 or more per week from 2 jobs over the tax year

This means that instead of the standard rate of 12 per cent, you will pay a deflated rate of 2 per cent weekly earnings between £184 and £967 in one of your jobs.

If your second job is a self-employed source of income, you will pay Class 1 NIC on your first job which is salaried based and Class 2 NIC on your second job which involves being self-employed. You will be paying Class 2 NICs in case you earn profits equal to or more than £6,475 per year and Class 4 NICs if your profits exceed £9,501 per year.

When you make National Insurance contributions, your entitlement towards contributory benefits increases. These include the following:

  • Unemployment benefits, such as Jobseeker’s Allowance (JSA) and  Employment and Support Allowance (ESA)
  • Bereavement benefits (Bereavement Allowance, Bereavement Payment and Widowed Parent’s Allowance)
  • Maternity Allowance
  • Incapacity Benefit

However, you can still receive National Insurance credits without making any contributions if you are unable to work due to an illness or you are caring for someone.

Do You Pay National Insurance If You Are Unemployed And Not Claiming Benefits?

If you do not pay National Insurance while being unemployed and not claiming benefits, it will lead to gaps in your National Insurance contribution. These gaps mean that you will not have sufficient National Insurance contributions to claim the following:

  • full state pension
  • certain benefits that you may qualify for 

In order to avoid these gaps, you may choose to make voluntary contributions. Other reasons may include any of the following: 

  • individuals are close to State Pension age and do not have the required number of qualifying years to get the full State Pension
  • individuals are aware that you are unable to achieve the qualifying years that are needed to get the full State Pension during your working years
  • individuals are self-employed but you have low profits due to which you do not have to pay Class 2 contributions
  • individuals live outside the UK, but you want to qualify for some benefits

In addition to being unemployed, you may experience gaps in your National Insurance contributions due to the following reasons:

  • you were employed but had low earnings
  • you were self-employed but did not pay NI contributions due to small profits
  • you were living or employed outside the UK

How Much Tax Will You Pay On A Second Job?

The tax that you pay on a second job will depend on a number of factors. However, generally speaking, your second job is usually assigned a BR (Basic Rate) tax code which indicates that there is a 20 per cent tax due on your income.  

One of the major concerns for people in a second job with a zero-hour contract is that since they are unsure of their incomes at the end of a month (due to the flexible nature of the working hours and tasks), they remain unsure of the amount of tax deduction to be levied. In some cases, individuals have requested HMRC to have their tax codes reassigned or consider their first job as the second one for tax deduction purposes.

To avoid being overtaxed or undertaxed (with tax arrears due at the end of the term) due to a second job, it is advisable to follow the below instructions: 

  • When you start a second job you must make sure that you get a Starter For or P46 from your new employer. This form is used to update your employment details at the HMRC.
  • Confirm the tax codes assigned to both of your jobs. Your main job is usually assigned a 125L tax code for 2021-2022; while your second job will be assigned a BR, D0 or D1 tax code.

If your second job involves you in a self-employed position, you will have to pay your own tax and National Insurance contributions by filing a self-assessment tax return on the 31st of January every year. 

What Does The D0 Tax Code Mean For Second Incomes?

The D0 tax code means that the individual will be liable to pay income tax at a higher rate of 40 per cent for all their incomes. It is commonly used in cases where individuals have more than one job or pension. The HMRC issues this tax code to individuals if all of their tax-free allowances have been used against another source of income. 

Individuals are assigned a D0 tax code because (a) they have multiple sources of income and (b) calculations predict that their second source of income will cause their total combined gross earnings to be between £37,701 and £150,000. This is only after any tax-free allowance has been deducted.

Tax codes are a combination of letters and numbers that determine the amount of income tax due on an individual. While the letters indicate your financial position and how it relates to your personal allowance, the numbers tell your employer pr pension provider the amount of tax-free income that you are eligible for in that tax year. 

For instance, 1257L (currently the most common 2021-22 tax code in the UK) refers to the new Personal Allowance rate for 2021-22, which is £12,570 and the letter “L” indicates that the individual is entitled to this amount of tax-free income. Any taxes that are to be charged will be above additional amounts beyond this figure.

How Does Personal Allowance Apply To Second Jobs?

When you are working in the UK, there is a certain amount of your income that remains tax-free as it is considered to be a Personal Allowance. The amount set for Personal Allowance during the 2021-2022 tax period is £12,750. Your personal allowance is applicable on your combined incomes from different sources. However, for the purpose of tax deduction, your main or primary job, which is also the source of a higher income is considered for Personal Allowance deduction prior to a tax rate being applied.

Your second job is usually considered to be the one that provides a lower income than the first one and there is no consideration for Personal Allowance since it has already been accounted for. The reason is that the HMRC divides your total income by sources to calculate the amount of tax that is due on your cumulative income.

Since you get Personal Allowance once (it does not apply to each individual source of income), it may be in your own interest to have it applied to your main job and not the second one. However, if someone works two jobs and their cumulative income is less than the Personal Allowance amount of £12,750, they can have it spilt across both incomes. Sometimes a second job may increase your tax bracket which leads to a higher tax deduction on your income with an insignificant impact on your take-home salary.

Conclusion:

From the discussion in this blog post, we may be able to conclude that national insurance is applicable in the case of second jobs only if your weekly earnings are more than £184. In fact, in the long term, it is favourable for you to have made NI contributions during your career. When you make National Insurance contributions, your entitlement towards contributory benefits such as unemployment benefits increases. These include Jobseeker’s Allowance (JSA) and  Employment and Support Allowance (ESA).

FAQs: Do You Pay National Insurance On Second Job?

Do you pay NI on all earnings?

No, you don’t pay National Insurance on all your earnings. NI contributions apply to weekly earnings that exceed the £184 minimum threshold. This means that NICs are only applied if you earn beyond £184. However, in the long term, NICs contribute towards your state pension.

Do you get taxed more if you have two jobs in the UK?

Yes, you get taxed more if you have two jobs in the UK. Your personal allowance is applicable on your combined incomes from different sources. However, for the purpose of tax deduction, your main or primary job, which is also the source of a higher income is considered for Personal Allowance deduction. Your second job is usually considered to be the one that provides a lower income than the first one and there is no consideration for Personal Allowance.

What is Class 2 National Insurance?

Class 2 national insurance applies to self-employed individuals. It is deducted at a flat rate of 2.8 per cent per week and is part of the Self Assessment tax return process.

Do I need to tell HMRC if I get a second job?

You will not need to inform HMRC if you get a second job as your employer will be doing so. This will enable the HMRC to assign an appropriate tax code to your income so that there is neither over deduction of taxes nor underpayment of the due amount.

Is working 2 jobs worth it?

While a second job increases your cumulative income, it also reduced the number of leisure hours that you have. However, as long as your ta payments are made on time and working schedules are managed, a second job may have more pros than cons.

References:

National-insurance_help-if-you’re-not-working

National-insurance-credits

National Insurance and benefits – Which?

Voluntary-national-insurance-contributions

Second job tax and pay

Second job tax – how much will I have to pay? | reed.co.uk

Tax Code D0 – Tax Rebate Services

Second job tax and pay | MoneyHelper

National Insurance with more than one job

Defer your National Insurance – GOV.UK

National insurance contributions (NIC) – Frequently Asked Questions

A guide to second job tax if you have a side hustle

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John has 22 years of experience in financial services. This spans across financial research, financial services (As a qualified mortgage broker and underwriter), financial trading and sales at global investment banks. While working as a publishing research analyst, he covered European bank credit and advised institutional clients on investment strategies at both JP Morgan and Societe Generale. John has passed all three levels of the CFA (Chartered Financial Analyst) programme.

John has 22 years of experience in financial services. This spans across financial research, financial services (As a qualified mortgage broker and underwriter), financial trading and sales at global investment banks. While working as a publishing research analyst, he covered European bank credit and advised institutional clients on investment strategies at both JP Morgan and Societe Generale. John has passed all three levels of the CFA (Chartered Financial Analyst) programme.