Business Advice Tax Advice

Is It Worth Getting a Second Job? Second Job Tax Explained

31 January 2018

Plenty of people take on a second job, whether it’s to make ends meet, or to afford a little bit of luxury. For some working two jobs seems ideal when have time on your hands and like to keep busy or even because you want to learn a new skill.

Whatever the reason the UK is a nation of grafters whether they want to be or not. There is an estimated 1.2 million people with a second job in the UK, up 40% from 2006.

But is it worth it?

A second job can mean added stress, hours spent away from doing things you enjoy and spending time with people you care about, interference with your main job as well as having untold health problems depending on the industry.

It can also cost you in extra travel or paying out for a sitter. There is a lot to weigh up before you sign the contract.

For most people, these are things already considered and brushed off. What seems to concern a lot of people however is tax.

So what is the story with second job tax?

 

second job tax 1

Income Tax and Second Jobs

I’ve heard numerous times people saying something along the lines of: “A second job isn’t worth it, you get double taxed”.

Well, this isn’t exactly the case so let me explain.

On your first job, everyone gets their Personal Allowance of £11,500 (2017-18) and that amount isn’t taxed.

If your income reaches over this personal allowance then you will get taxed at the following rates:

Basic rate: £11,501 to £45,000 at 20%
Higher rate: £45,001 to £150,000 at 40%
Additional rate: £150,000 and over at 45%

So for most people, their first job will already take them over the Personal Allowance threshold, with the remainder being taxed.

However, once you have a second job, it doesn’t receive the personal allowance so all of your income from your second job will be taxed at the rates above.

Therefore, most people will just see it as if you’re getting taxed heavier for your second job, which isn’t necessarily true. You just aren’t getting the personal allowance.

Think about it this way. Your income increasing by £5,000 and earning £5,000 from a second job works in basically the same way and both are taxed at 20%. (I say taxed at 20% because it’s easier. If your new earnings pushed your total income into a new bracket, you would pay tax at the appropriate level.)

Where it would affect you more and perhaps make it unbeneficial would be if your second job pushes you into this higher tax band.

 

second job tax 2

National Insurance and Second Jobs

Similar to Income Tax, National Insurance also has an ‘Earnings Threshold” that is set at £157 per week (2017-18) per job.

Therefore, if you have two jobs and one earns you more than £157 per week, you will have to start paying National Insurance.

National Insurance is 12% of the income above the threshold up to £866 per week. The rate then drops to 2% of your earnings over £866 per week.

However, if you earn less than £157 per week on your second job, you won’t have to pay any National Insurance on that job.

Other factors you should consider before taking a second job are what effect it might have on your tax benefits and pension.

Also, remember you are able to claim back some business expenses, check out our article What Allowable Business Expenses Can I Claim Back As A Sole Trader? to find out more.

 

second job tax 3

Make Sure You Are Paying The Right Tax

If you choose to take on a second job, you have got to make sure you don’t end up paying too much (or too little) tax.

Errors can happen if you haven’t told HMRC that you have a second job and you are given a second personal allowance. While that might sound great, errors are usually fixed eventually and that means you’ll have to pay all your tax back, along with possible interest and penalties.

However, you could also end up paying too much tax if the combined salary of both of your jobs is less than your personal allowance and HMRC has your second job on the BR (Basic Rate) tax code. Either way, underpaying or overplaying is going to have a negative effect on your wallet.

To make sure you avoid under or overpaying your tax, make sure you send the details of your new employment to HMRC via a P46 form. You should then check your tax codes to make sure they are correct.

 

It’s not easy keeping tabs on one job tax, never mind two.

At Tax IQ we specialise in helping freelancers, contractors and small businesses get their finances in order. We take care of everything from personal tax returns and payroll to business accounts and expenses.

To find out how we can help save you money through expenses, get in touch with our team today.