The amount of tax due on an individual’s wages depends on the tax code that is assigned to them. Through this blog post we will discuss in detail, the potential implications of being on                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    a second job while someone is still on a furlough leave in the UK. Additionally, we will also explore different situations under which taxes are levied on second incomes. 

What Are The Tax Implications Of Being On A Second Job While On Furlough?

If you start a second job while being on Furlough Leave, your second job will be taxed as regular secondary incomes are.

In normal circumstances, when someone starts a new job, they usually hand over their P45 from the previous employer to the new employer. However, in such a case when an employee is on Furlough Leave, they will not have a P45 to hand over as the previous job has not actually ended. Therefore, they will be asked by their new employer to fill out a P46 or a Starter Checklist so that a tax code can be assigned to their wage. If this does not happen, the employee will end up with an incorrect tax code and paying too much or too little taxes.

It is important to remember that in such a case, your first job remains your main job as you continue receiving a higher percentage amount (if not full) of your average pay while being on Furlough under the Coronavirus Retention Scheme. Your second job is treated as a secondary source of income.

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 split 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 Is A BRX Tax Code?

A BRX tax code is an emergency tax code that indicates that all your incomes must be taxed at the basic rate of 20 per cent without taking into consideration your tax-free Personal Allowance. 

It is usually applied when the HMRC and your employer do not have complete details regarding your employment and/or income details and the BRX tax code is assigned to you while the documentation is complete and a permanent tax code can be assigned to you.

In addition to this, you can be assigned a BRX tax code if:

  • an individual has not provided their employer with a complete P45 form or a P47
  • someone is being transferred from being self-employed to a PAYE employee
  • you are receiving an additional income through a second job or a pension

If you think you’ve been assigned a BRX tax code by mistake you should provide the required documents and details to your employer or HMRC so that a correct tax code can be assigned to you. If you fail to do so, you may end up overpaying your taxes.

Is There Any Other Basic Rate Tax Code?

Yes, there is another basic rate tax code. If your tax code is 0T1, it means that you have no tax free personal allowance and a basic rate of income tax will be applied to the total amount of your income.

There are many reasons why an 0T1 tax code is assigned to individuals. One of the reasons may be that you have no tax free allowance remaining which may be exempted from income tax. Another reason could be that you’ve recently started a new job. Due to this, you have not been able to give your employer your old P45 and you haven’t submitted your P46 as yet. 

This means that taxpayers living in England will be charged as follows:

  • 20% tax on income up to £37,500
  • 40% tax on income between £37,501 and £150,000 
  • 45% tax on income above £150,000

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.

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.

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?

Incomes above the minimum cap are taxed at an incremental rate of 20 percent 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 percent income tax when income is up to £12,570
  • 20 percent 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. 

Do You Pay National Insurance On A 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.

Conclusion: 

The above discussion makes it clear that while a worker may be on furlough from their primary job, they can take up a secondary job at another company. However, both their ncoems will remain due for tax; depending on the tax code assigned to each income. 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.  

FAQs: What Are The Tax Implications Of Being On A Second Job While On Furlough?

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.  

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.

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 for your 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:

Taking on an extra job? Check your tax!

Can Employees Take a Second Job During Furlough Leave?

How you’re taxed when you have more than one job

Are you aware of the tax implications when taking on a second job?

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

National-insurance-credits

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

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

What Is A BR Tax Code? | BR Emergency Code.

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