Many people take on a second job to make some extra money, or as a stepping stone to starting their own business. But they might be unaware of their rights around taking a second job and how they will pay tax and National Insurance on it. In this guide you’ll find out about second job tax and National Insurance, your rights when taking on other employment and how it could affect your benefits and pension contributions.
Can my employer stop me from having a second job?
One of the first questions you need to ask yourself, is if your existing contract of employment lets you take on a second job.
You should have been provided with a copy of your contract when you started working for your employer. If you don’t have one, your employer or HR department should be able to provide you with one.
Your employer might rule out you taking on additional jobs in situations where:
- there might be a conflict of interest, for example, working for a rival company
- your second job might bring your employer into disrepute.
If you’re not sure, check your contract. If there’s nothing about second jobs stated in it, your employer can’t prevent you from taking another job.
What are my rights when working a second job?
Rights and contracts
Depending on your employment status, you’re entitled to rights at work, regardless of whether it’s your first or second job.
Whatever your employment status may be, if you’re employed by someone else, you should have an employment contract. This should outline, among other things, your job title, responsibilities, pay, hours of work and which benefits you’re entitled to.
National Minimum Wage
Almost all workers in the UK are entitled to be paid at least the National Minimum Wage - or the National Living Wage if you’re 25 or over.
By law, you can’t be asked by your employer to work more than an average of 48 hours per week in a single job.
However, if you’re over 18 you can choose to work more hours than this and you might need to if you wish to take on a second job.
Income Tax on second jobs
If you’re working, you are entitled to earn a certain amount of money without paying Income Tax. This is called the Personal Allowance and is £12,500 for the 2020/21 tax year.
You only get one Personal Allowance, so it’s usually best to have it applied to the job paying you the most.
If you work two jobs and neither income is above £12,500 you can split your Personal Allowance.
Example 1: If you have two jobs
Jane works two jobs. Her main job pays £14,000 a year and the second £6,000.
Her whole Personal Allowance is applied to her main job. If she lives in England, Wales or Northern Ireland, she pays income tax at the Basic Rate of 20% on the £1,500 of her pay that is above the allowance for her main job and on all her income from her second job.
Example 2: Two jobs below the Personal Allowance
Richard has two jobs, his main job pays £10,000 a year and his second £9,000.
Both of these are below the Personal Allowance, so he can split his allowance between the two jobs.
He can contact HMRC and get them to transfer £2,500 of unused allowance from his main job to his second job, or he can wait until the end of the tax year and ask HMRC for a refund.
You should only ask for your Personal Allowance to be split if your income from each job is predictable and stable. If it’s not and one job ends up paying you more than expected, you will have underpaid tax.
Example 3: If your combined earnings are over £50,000
Rebecca’s main job pays her £45,000 a year, but she also has a part-time job paying £12,000 a year. This means she has a total income of £57,000, with all of her Personal Allowance being applied to her main job.
Unless Rebecca tells HMRC this, her second job will be taxed entirely at the Basic Rate, when some of it should be taxed at the Higher Rate.
If she doesn’t tell HMRC this, she will have to pay additional tax at the end of the tax year.
Tax Codes for second jobs
To make sure you’re paying the right amount of tax and are not hit with unexpected tax bills, penalty charges and interest, you should check your tax codes.
Your main job, assuming it pays you more than the Personal Allowance, should be 1250L for the 2020/21 tax year.
Your second job should have a BR, D0 or D1 tax code, depending on whether or not it’s taxed at the Basic, Higher or Additional Rate.
You can find your tax code on your payslips and you can inform HMRC about starting a second job using the new starter checklist from your new employer.
National Insurance on second job
If you earn above £183 a week in the 2020/21 tax year, you will have to pay Class 1 National Insurance Contributions (NICs).
If you earn more than this in both of your jobs, you will pay NICs on both jobs.
How will having a second job affect my benefits?
Taking a second job can affect your tax credits or other benefits, so you need to work out how much extra you will be earning.
If you’re claiming Universal Credit, and are not getting the work allowance, your payment will go down 63p for every £1 earned.
If you’re still claiming Working Tax Credit, you will need to tell the Tax Credit Office if your income changes by more than £2,500. But this might count as a change in circumstances and could mean you may have to make a new claim for Universal Credit.
Second job and pensions
Taking a second job might give you the opportunity to pay into another workplace pension scheme but remember to keep track of any small pensions you’ve paid into.
If you pay a small amount into a pension in your second job, it might be worth combining it with a larger pension when you leave.
If you are already receiving your State Pension, or you have a private or occupational pension, and you work as well, it can have tax implications.
Again, it’s very important to make sure you’re paying the correct amount of tax and have the right tax code.
Self-employed as a second job
If you’re working your second job as self-employed, then you will need to:
- register as self-employed with HMRC
- file a Self Assessment tax return by 31 January each year
- pay your own tax and National Insurance Contributions (NICs).
As you’re self-employed, you will not get a payslip, so you will have to be careful about your tax code on your other job.
Usually, the job paying you the most should be classed as your main job. However, if your second job is self-employed you might not know exactly how much you’re earning. This makes it potentially difficult to make sure your full Personal Allowance is being taken.
If both jobs are paying you below the Personal Allowance, you are still entitled to split your allowance between them.
If one of your jobs is self-employed, you will pay tax and NICS a year in arrears. For example, for the money you earned in the 2019/20 tax year, you will need to pay the outstanding tax and NICs by January 31 2021.
This means it’s very important you think about how you will pay what could be a substantial bill. The good news is, you should have an idea about how much tax you will owe at the end of the previous tax year, which gives you nine months to prepare.