Your earnings are taxable whether you draw them through single or multiple sources of employment. It is essential to understand your tax codes as well as the amount of tax due on each source of income. For this purpose, we will explain in detail the amount of tax due on secondary jobs in the following article. For a broader view of the topic, we will also discuss how tax codes are assigned, personal allowances deducted from the taxable amount of your income and which incomes are tax-free in 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.  

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 to 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.

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 Are Tax Codes Assigned?

The following steps are followed by the authorities while assigning tax codes:

  • Step 1: Your tax allowances are calculated. In most cases, this is an individual’s personal allowance added to any other allowances and job expenses.
  • Step 2: Your deductions are calculated. These are incomes for which tax has not been paid and may include any part-time work or certain state benefits.
  • Step 3: The deductions are subtracted from the tax allowances. The result is your pre-tax income. If this amount equals personal allowance, your income remains tax-free.

This link can help you with details of what each tax code means

If you don’t know your tax code, you can find it through any of the below-listed documents:

  • Payslip
  • P45 form
  • P60
  • PAYE coding notice
  • Pension advice slip
  • HMRC website

How Much Income Tax Do I Have To Pay In The UK?

Incomes above the minimum cap are taxed at an incremental rate of 20 per cent to 45 per cent depending on whether an individual belongs to the basic, higher or additional tax rate band. Below are details of these bands:

  • 0 per cent income tax when income is up to £12,570
  • 20 per cent income tax when income is between £12,571 and £50,270 
  • 40 per cent income tax when income is between £50,271 and £150,000 
  • 45 per cent income tax when income is above £150,001

If you are self-employed, you are required to file a self-employed tax return in order to pay your taxes through a self-assessment. 

What Are Basic Taxes In The UK?

According to a general estimate, an individual pays one-third of their income in the form of taxes in the UK. While the amount of tax one pays depends on the scale of their income, some people will pay a higher tax perhaps due to the property that they own or inheritance that they may receive.

There are different types of taxes under the UK taxation system. Direct taxes include PAYE (Pay As You Earn) and National Insurance. These account for 20 per cent of an individual’s income. On the other hand, indirect taxes include VAT, council tax as well as duties on alcohol and petrol. 

Basic taxes in the UK include the following:

  • Income Taxes 
  • Property Taxes 
  • Capital Gains 
  • UK Inheritance Taxes 
  • Value Added Tax 

These are all progressive taxes; which means that the scale of tax increases with an increase in income.

What Are Direct Taxes?

Direct taxes are automatically deducted from your wages, income or pension before you receive them. This is termed as Pay As You Earn. Anyone earning equal to or less than £12,750 is not eligible for PAYE as the amount is considered under the law as an individual’s personal allowance. 

In addition to income tax, direct taxes include National Insurance. During the last fiscal of 2021-22, employees paid 12% on earnings exceeding £9,568 up to £50,270 a year, and 2% on earnings above this.

Salaried individuals have NIC deducted from their wages directly by their employer. While self-employed people are required to submit a self-assessment tax return.

Which Incomes Are Tax-Free In The UK?

Incomes derived from any of the following sources are considered to be tax-free in the UK:

  • Transport costs of an employee’s (and their immediate family) relocation for work in the UK
  • Winnings from games, pool betting, lotteries or competitions with prizes
  • Long service employee awards (certain limitations apply)
  • Individual savings account amounting to £20,000
  • Incomes such as interest or dividends arising from savings accounts 
  • Pensions paid to war widows and dependents
  • Social security and state benefits include maternity allowance, employment and support allowance, attendance allowance, child tax credit and housing benefit. 

Conclusion:

Through this article, we have learned that second incomes are generally assigned as BR, D0 or D1 tax code; depending on whether an individual qualifies for a basic, higher or additional tax rate band. However, their Personal Allowance is applied once on their cumulative income; while in the case of tax deduction, it is usually assigned to their main income, which is higher in amount. To make sure that you are not overtaxed or undertaxed, you must be aware of the tax code on your payslip and what it means, as well as fill out the P46 form once you enter into a second job.

FAQs: How Much Tax Will You Pay On A Second Job?

Will I get taxed more if I have 2 jobs in the UK?

Yes, you will be taxed more if you have two jobs as compared to one because your total income will rise with dual earnings. However, your Personal Allowance will be deducted from your main income.

How much tax do I pay if I have a second job?

While the amount your pay in taxes will depend on the assigned tax code on your second job; generally it is applied at the basic rate of 20 per cent.

Is it worth having 2 jobs in the UK?

Whether or not it is worth having two jobs in the UK depends on the impact on your overall income after tax deductions are made. However, a second job usually provides the opportunity for a second pension scheme.

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

Yes, you need to tell HMRC if you get a second job so that you are not undertaxed during the financial year and have tax arrears at the end of the term. 

Do you pay NI on 2nd job?

Whether or not you pay NI on your second job depends on your earnings. Individuals with a weekly income above £184 in the 2021/22 tax year, pay Class 1 National Insurance contributions. If someone earns more than this in both of their jobs, they will pay NI on the second job as well.

References:

Second job tax and pay

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

How much tax do you pay on a second job? – The PAYE People

Income Tax – GOV.UK

What your tax code means – GOV.UK

Tax codes – GOV.UK

Tax Code D0 – Tax Rebate Services

Income Tax rates and Personal Allowances – GOV.UK

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