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Simon Thomas from Ridgefield Consulting outlines what you need to do with regard to tax if you have more than one job.
It’s becoming increasingly common for people to have more than one job. If this is the case for you, then it is important you understand how to check you’re being taxed correctly to ensure you are not over-paying or under-paying.
If you work for employers, then you should have been added to their PAYE system (pay as you earn) which means that it is their responsibility to make sure they are deducting the correct amount of tax from your wages. However, when working for two different employers, errors can occur if you do not let them know about your other job(s).
When it comes to income tax, it doesn’t matter how many different jobs you have, but you need to total your overall earnings for the year. This is because everyone is entitled to one personal allowance each year (currently £12,570) which means you can earn up until this amount before you begin to pay income tax.
When you start working for more than one employer, you should establish a primary employer. This is often your most stable source of income, or income where you earn the most. HMRC will assign a tax code to your primary employer which will allow you to receive your full personal allowance.
Income from your second job will therefore be fully taxed and it may seem as if you are being taxed more, but it is simply because you are receiving your full personal tax allowance through your primary employment. If you earn under the personal allowance between both jobs, then you can contact HMRC and ask them to split your tax code between both. This means that you will receive part of your personal allowance through each job instead.
Examples of how you are taxed with more than one job:
1. If you have two jobs where your first job pays £18,000 per year and your second job pays £5,000 then your full personal allowance will be claimed from your first job. All earnings from your second job will be subject to income tax at the basic rate of 20% because your total earnings are under £50,270.
2. If you work two jobs and your first and second job both pay £10,000 then you will need HMRC to split your tax code across both jobs which allows you to claim your personal allowance on both. You will still have to establish a primary employer where your full earnings will be tax-free and covered by your personal allowance. The remaining ££2,570 of your personal allowance will be allocated to your second job which means only your earnings of £7,430 from your second job will be taxed at 20%.
3. You work two jobs where your first job pays £6,000 and your second job pays £5,000. Both jobs combined are under your personal allowance and so none of your earnings will be subject to income tax.
People often believe when they work more than one job that they are taxed more, but this is not the case. You are not taxed any differently to if all your income was all coming from one employment.
You should, however, check whether two jobs will push you into higher income tax bands where you will be taxed at higher income tax rates. To make sure you are paying the correct amount of income tax when you start a second job, you should complete HMRC’s new starter checklist to give to your new second employer. This will help HMRC make sure that they allocate you the correct tax code.
*Simon Thomas is Managing Director of Ridgefield Consulting, a Chartered Accountants based in Oxford.