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Tax on a Second Job

how does tax work with 2 jobs

Tax on a second job seems complicated but it shouldn’t be. In these difficult economic times, it is a reality that many people are working more than one job and may need to pay tax on both. Understanding how tax works when you have a second job may not seem an easy task but, it’s vital to understand how tax works on a second job to make certain you aren’t paying too little or too much. The PAYE system, often makes this relatively straightforward but we discuss a variety of scenarios to support your needs.

So, how does tax work with two jobs? And how do you make sure you are paying the correct amount?

In this article, we will explain everything you need to know about being taxed with two jobs. We will also give some examples of different scenarios to show how tax is affected as well as discuss other financial matters such as national insurance contributions and pension payments.

How are you Taxed if You Have More Than One Job?

Assuming you are currently employed by an employer, you should already have been included in their PAYE system “Pay As You Earn”. This means that your employers are now accountable for deducting the proper portion of income tax directly from your salary, including your National Insurance (NI) contributions as well as national pension contributions and private contributions if you are enrolled in a workplace pension scheme.

If you have more than one employer, each employer will need to add you to their PAYE system. You are required to complete the new starter checklist accurately and then provide the necessary documentation to your employers that you currently have another job. Once you have done this, the employer will be able to establish the appropriate tax code for you. Your tax code is essential to making sure you are not paying too much or too little tax from your salary.

It is requisite for you to establish a primary employer. Generally, this will be the employer from which you receive the most salary. It is more sensible for your primary employer to account for your personal allowance through your tax code. Each individual is granted an annual personal allowance (£12,570 untaxable income in the 2023-2024 tax year.) 

If you neglect to inform your second employers that you are already employed, they might incorrectly apply the standard tax code which specifies to HMRC that you are eligible to receive your full personal allowance. In doing so,  you will receive double the full personal allowance amount and you will end up underpaying tax.

Should you earn under £12,570 for both jobs, ask the HMRC to divide your personal allowance between two different employers. This ensures you will receive your full personal allowance and makes sure you are paying the correct amount of tax for how much you earn overall from both jobs.

Examples of how you are Taxed when you Have Two Jobs

  1. Your first job pays £16,000 per year and your second job pays £6,000 per year. The entirety of your personal allowance is claimed from your first job because it pays you more and above the personal allowance amount. The total earnings from the second job will be taxed at the basic rate of 20% considering your total earnings are under £37,701.
  2. In a scenario in which you work two jobs where the first job pays £10,000 and the second job pays £2,000, the earnings from both come to a total that is under your personal allowance, therefore none of your earnings is subject to income tax.
  3. If you work 2 jobs that both pay the same, for example, £10,000 and £10,000. Both of these salaries are below your personal allowance, therefore it is possible to ask HMRC to split this across both jobs. It is recommended to select the most reliable job as your primary employment. 100% of the earnings from your primary employment are tax-free because it is covered by your personal allowance. The remaining balance can be assigned to your second job. The residual earnings from the second job are taxed at the basic rate of 20% as your total earnings are under £37,701.

Will Tax on a Second Job be Taxed More?

It is common for people to incorrectly assume they will be taxed more when they have more than one job. In the sense that the more your earn, the more taxes you pay, this is true. However, the total income will not be taxed any differently, regardless of how many jobs you work. It is possible that your total income from more than one job could move you into a higher rate income tax band.

As always, If you earn over £37,701 (above PAYE threshold), all earnings over that amount will be taxed at a higher rate of 40% instead of 20%. Earnings over the £125,140 threshold will be taxed at 45% in England and Northern Ireland and also for Wales. Scotland has 5 bands of tax rates: 19% to £2,162 (above PAYE threshold), 20% from £2,163 to £13,118, 21% from £13,119 to £31,092, 42% from £31,093 to £125,140 and 47% above £125,140. 

How you will be Taxed if you Have 2 Jobs and reach over the higher threshold?

Let’s assume you have 2 jobs. The first job pays £45,000 and the second pays £10,000. As we discussed before, your entire personal allowance shall be claimed through your first job. You will be taxed basic rate tax on the remainder of your earnings (£32,430) from this job. Whilst it might appear you do, you don’t get more tax on a second job. 

Since your full personal allowance has been accounted for from the first job, 100% of the earnings from your second job are subject to income tax. £5,270 from the second job shall be taxed at the basic rate as this totals your earnings to £50,270. The £4,730 surplus you receive from the second job will be taxed at 40% because this income now moves into a higher rate tax band.

If you earned £55,000 from one job, the tax calculation would be the same, meaning you are not taxed more or less if you have multiple jobs. Keep in mind that if you have more than one job, it is possible to see other deductions from your salary like NI contributions or workplace pension contributions.

Understand Your NI Contributions

How do Contributions to National Insurance Contributions Work with Two Jobs?

There are additional deductions from your salary in addition to income tax, including NI contributions. Simply put, NI contributions are a tax which pays for state benefits. NI is calculated in a different way from your personal allowance. Everyone over the age of 16 and earning at least £242 per week must pay NI on every job. This threshold applies to each job and does not generally take into account your total earnings across multiple employments, meaning it is quite easy to underpay or overpay on NI if attention is not given.

Examples of Underpaying NI if You Have Multiple Jobs

  1. Your first job pays £60 per week while the second pays £80 per week. Because the earnings for each job are below the Lower Earnings Limited (LEL) you are not required to pay any NI and are therefore recorded as having made no NI contributions. If your total earnings of £140 per week were from a single employer, this would put you above the LEL but would still remain under the Primary Threshold. In this instance, you are not obliged to pay any NI but you are noted as having made NI contributions.
  2. Job one pays £105 per week and job two pays £95 per week. Again, earnings from both are below the LEL so there is no need for you to pay NI and are documented as making no NI contributions. On the other hand, if you earned £200 per week under one single employment, you would move into the Primary Threshold and be required to start paying NI at 12% as well as being recorded as having made NI contributions.

Keep in mind that you need to accumulate 35 years of NI contributions to have access to a full state pension. You can make Class 3 NI Contributions to fill any gaps you may have.

Example of Overpaying NI if You Have Multiple Jobs

£600 per week comes from your first job and £500 per week from the second. Earnings from both are above the Primary Threshold but remain below the Upper Earnings Limit (UEL), meaning 100% of the earnings from both jobs are liable to 12% NI. If £1,100 per week was earned under one job, you would fall into the UEL. In this case, your earnings of up to £962 per week are subject to 12% NI while the remaining £138 will be reduced to a 2% rate for NI.

To avoid overpaying NI, it is possible to inform HMRC and ask to defer your NI if you know in advance that you will go into the UEL across two jobs. Also, if you are already in a scenario where you have overpaid, you can complete a form requesting a refund. The refund process will take around two weeks with the money being paid straight into the same bank account that your salary is paid.

Workplace Pension: How Does it Work When You Have Multiple Jobs?

Employers are legally obligated to automatically enrol all eligible jobholders onto a workplace pension scheme. You are deemed to be an eligible jobholder when:

  • Aged between 22 and the state pension age
  • Earning above the earnings threshold (£10,000 for the tax year 2022/23 but is calculated on a pro-rated basis contingent on your pay period)
  • Working primarily in the UK (you should be based in the UK but overseas travel for work is acceptable)
  • Having a contract of employment (not a freelancer or contractor)

For all workplace pension schemes, it is necessary to make a minimum contribution of 5% of your earnings and the contribution cannot be divided across two different jobs. Also, if you have multiple jobs, you can opt out of any workplace pension schemes, remain on one or remain on all if you choose.

The maximum amount of pension contribution you can make without losing any tax relief is currently set at 100% of income with a ceiling of £40,000. However, there is not a maximum number of separate workplace pension schemes you can be on. Although it is not always easy, the more you contribute to your pension schemes throughout your career, the better off you will be later in life when the time comes to collect.

You May Be Entitled To A Refund

What if You are Working a Zero-Hours Contract and Get a Second Job?

A ‘zero-hour contract’ is a contract between an employer and a worker in which the employer is not obligated to supply any minimum working hours and, in turn, the worker is not required to accept any work that is offered.

Should your primary employment be a zero-hours contract job, then any job you assume after shall be considered a second job, even if you are not currently working for your zero-hours contract job but are still employed there. The tax conditions in this situation may be slightly more complicated, and it is possible that you will lose some of your personal allowance based on the amount of time that you do not acquire work from your zero-hours contract job.

In this scenario, you have two primary options when it comes to ensuring you are taxed correctly. If you think most of your earnings will originate from your second job, contact HMRC to request a review of your tax code. There may present you with multiple options such as changing your tax code to make your second job the primary or dividing your personal allowance between the two jobs.

If you are in a situation where you think that you will temporarily have no work from your zero-hours contract, you may select to continue paying tax on 100% of the earnings from your second job. When starting work for the zero-hours job again, you can obtain an adjustment in your tax code so that you acquire any missed personal allowance, or you’ll be able to claim a tax rebate at the end of the tax year.

Final Thoughts

Working multiple jobs is difficult enough without worrying about your taxes. Hopefully, this article will reassure you that you will not get taxed more on a second job – Tax works to the total value. If you have any worries regarding your tax code or if you are paying the proper amount of taxes, do not hesitate to contact your HR or Payroll department who should be able to check everything is correct.

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