What you should know about Tax and your Second Job​

• Second PAYE jobs

  When you're working one of more PAYE jobs, your Income Tax and National Insurance Contributions (NICs) are handled automatically. Basically, a chunk of your cash gets carved off and sent to HMRC before you're even paid. It's tempting to assume that you don't need to worry about it, since it's all out of your hands anyway – but it's not that simple. It comes down to your tax code, and in the taxman's eyes it's entirely your fault if something goes wrong with it.

• 'Second Jobs' you may not realise are 'second jobs'

  Let's deal with the obvious one first: it's possible to have two jobs without even realising it. A second job is can be classed as anything you make money from in addition to your primary role. This can be anything from:

  • renting out a property
  • making and or selling online 
  • delivery driving such as UberEats or Deliveroo

  If you're making over £1,000 a year, HMRC's going to want to hear about the money coming in. Depending on your set-up and situation, you might well owe some extra tax on that cash.

  This will generally mean signing up for the Self Assessment system and filing yearly tax returns to report your income and expenses. You'll have strict deadlines to hit, whether or not you end up owing any tax - and there are some pretty nasty penalties in store if you mess things up and don't file or pay in time.

  One thing that particularly muddles things up for people new to Self Assessment is that (unlike PAYE) you're paying the tax you owe for self-employment after you've earned it – at least mostly. When you file your yearly tax return, you get a bill for what you owe and a deadline to pay up (the 31st of January). However, HMRC will use the figures in your tax return to estimate the tax you'll owe the next year as well, and make you pay two “payments on account” against it. They basically divide your expected upcoming tax bill in half and make you pay a chunk of it by the 31st of July, then the rest by the following 31st of January. It's actually supposed to make things easier for you, believe it or not, since paying ahead of time in instalments is a little less of a shock to your wallet than coughing up potentially many thousands of pounds at once. Even so, it's one of those tricky little areas of the tax rules that can cause serious headaches if you don't keep your wits about you.

  Earning more than £100k? Read this

• Tax code troubles

  Every PAYE job comes with a tax code, so if you've got more than one job, you're juggling more than one code. Each code lists some important information about how your money's taxed. For instance, it'll determine whether your Personal Allowance applies or whether you start paying tax from the very first penny you make instead.

  The most common tax code for the 2022/2023 tax year is 1257L. All this code means is that you've got a Personal Allowance of £12,500 a year, and won't start paying tax on anything you earn below that. The letter at the end in this case just confirms that no special circumstances apply for this job. When you've got more than one job, a few things can go wrong with your tax codes. For one thing, if your Personal Allowance gets applied to the wrong job, you can miss out badly. Generally, you'll want it applied to the job that pays you the most – since you won't get the full benefit of it if it's applied to one that brings in less than the Personal Allowance threshold (£12,500 for 2022/23).

  

  Okay, but what if both of your jobs pay less than the Personal Allowance you're entitled to? Well, in that case you need to get things sorted out fast before they cost you money. Let's imagine your main job in 2022/23 pays you £12,000 and your side-gig pays £8,000. Applying your Personal Allowance to the main one means you're losing the benefit of £500 of it. If things go really wrong and your allowance gets slapped onto your second job, you're missing out on a whopping £4,500 of it! When this kind of thing happens, you need to get in touch with HMRC as quickly as possible. They've got a system for splitting your Personal Allowance between your jobs so that you don't end up paying too much tax overall.

  It's worth pointing out that splitting your Personal Allowance might not be the best idea if the income from your PAYE jobs isn't predictable. If one of your gigs suddenly takes off and pays a lot more than expected, you might end up with the taxman sniffing around your circumstances because you've underpaid.

  With your Personal Allowance attached to your “main” job, your other one will generally get a code that sees it taxed at the basic rate from the very first penny. That sounds a little painful, but it's pretty much the fairest way to handle it. Again, though, there can be some problems when the numbers flying around get bigger. If your combined income goes over the threshold for the higher rate of Income Tax (£50,271 for 2022/23), then your tax codes won't be right.

  Let's say you've got a main job paying £35,000 a year and another one paying £20,000. Not too shabby overall, you think. However, if you don't square things with HMRC you might be looking at some trouble when they catch up to you. In total, you're making enough for some of your income to be taxed at the higher rate. Despite that, since your earnings for each job are below that threshold individually, you're only being taxed at the basic rate on each (after your Personal Allowance, of course). Again, you have to talk to HMRC to get this sorted out and prevent some tense situations with the taxman.

• Will having a second job affect my benefits?

  If you qualify for tax credits or some other kind of benefit, taking on another job can obviously knock a hole in what you can get. With Universal Credit, for instance, the amount you claim drops as the amount you earn rises. You might be eligible for a work allowance, which is a bit like the Personal Allowance you get for Income Tax. If you're taking care of a child or have circumstances that limit how much you can work, you might qualify for an allowance of £287 if your claim includes housing support or £503 if it doesn't. Anything you earn below your allowance won't bring down your Universal Credit. After that, though, your UC payments will drop by 63p for every £1 you're earning.

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