How You’re Taxed When You Have More Than One Job

 

It’s not uncommon for many people to have more than one job at the same time. When this applies to you, it’s important to understand how you’re being taxed when you have more than one job so that you can ensure you are not paying too little or too much tax. If you’re already employed by an employer, you should have been added onto their PAYE system (‘pay as you earn’) through a new starter checklist. By doing this, it means that your employers become responsible for deducting the correct amount of income tax direct from your salary including National Insurance (NI) contributions and pension contributions when you’re automatically enrolled onto a workplace pension scheme.

How you’re taxed when you have more than one job

When you have more than one employer, you will need to be added to each employer’s PAYE system. You must complete the new starter checklist correctly as this is where you’ll provide documentation to your employer that you already have another job. They are then able to determine the most appropriate tax code for you. Your tax code is crucial to ensuring you are not paying too much or too little tax direct from your salary.

You will need to establish a primary employer. This will usually be considered as the employer from which you receive the most salary. This is because it will be more practical for them to account for your personal allowance through your tax code. Every individual is entitled to an annual personal allowance and for the tax year 2020/21 it means you can earn up to £12,570 tax-free.  Where you do not tell your second employers that you are already employed, they may mistakenly apply the standard tax code which indicates to HMRC that you should receive your full personal allowance. Doing this means you’ll receive twice the full personal allowance amount and leads you to underpaying tax.

Where you earn under £12,570 for both your jobs, you can then ask HMRC to split your personal allowance across two different employers. This means you’ll still receive your full personal allowance and will ensure you’re paying the right amount of tax for how much you earn across both jobs.

Examples of how you are taxed when you have two jobs

  1. You work two jobs where your first job pays £15,000 per year and your second job pays £5,000 per year. Your whole personal allowance will be claimed from your first job which pays you more and above the personal allowance amount. All earnings from your second job will therefore be subject to income tax at the basic rate of 20% because your total earnings are under £50,000.
  2. You work two jobs where your first job pays £9,000 and your second job pays £3,000. Earnings from both jobs combined are under your personal allowance and so none of your earnings should be subject to income tax.
  3. You work two jobs where your first job pays £9,000 and your second jobs also pays £9,000. Both salaries are under your personal allowance and so you can ask HMRC to split this across both employments. Choose your most stable job as your primary employment. 100% of your earnings from your primary employment will be tax-free as it will be covered by your personal allowance. The remaining £3,500 can be allocated to your second job. The remaining earnings of £5,570 from your second job will be taxed at the basic rate of 20% because your total earnings are under £50,000.

Does a second job get taxed more?

Many people mistakenly believe that they are taxed more when they have multiple jobs. Arguably, the more you earn, the more tax you have to pay, so this does make sense. However, you will not be taxed any differently to if you were to receive your total earnings under one employment. What could happen however, is that your total income from multiple jobs could push you into a higher rate income tax band.

Once you begin to earn over £50,000, any earnings over that amount will be taxed at the higher rate of 40% as opposed to the basic rate of 20%. If you earn over £150,000, the amount that exceeds this threshold will be taxed at the additional rate of 45%. What’s more, once you are earning £100,000 or more, you will begin losing part of your personal allowance. Your personal allowance is reduced by £1 for every £2 you earn over £100,000. Effectively, this means you will no longer have a personal allowance once you make earnings of £125,000 per year.

Example of how you are taxed when you have two jobs and earn over £50,000

You work two jobs where your first job pays £45,000 and your second job pays £10,000. Your whole personal allowance will be claimed through your first job. You will be charged basic rate income tax on the rest of your earnings (£32,430) from this job.

As your full personal allowance has already been accounted for, 100% of your earnings from your second job will be subject to income tax. £5,270 from your second job will be taxed at the basic rate as this will bring your total earning to £50,270. The remaining £4,730 that you receive from your second job will be taxed at 40% as this income falls into the higher rate income tax band.

This calculation would be no different if you were to earn £55,000 from one job as opposed to split across two. This therefore means that you pay no more tax on two jobs than what you would pay if you only had one. However, what you do need to bear in mind is that with any additional jobs, you may see other deductions from your salary such as NI contributions or workplace pension contributions. These are covered in the sections below.

How does National Insurance Contributions work when you have more than one job?

In addition to paying income tax from your salary, other deductions include NI contributions. NI contributions are a tax that pays for state benefits. For more information, you can read our article which explains what NI contributions pay for, when you need to pay them and how much you have to pay.

Unlike your annual personal allowance, NI is calculated in a different way. There is no allowance for individuals, and instead, everyone must pay NI on every job where you are over the age of 16 (but under the state pension age) and are paid at least £183 per week. This NI threshold is applied to each job you may have and does not usually take into consideration your total earnings across multiple employments. This means that you can easily under pay or overpay on NI.

Examples of underpaying NI when you have more than one job

  1. You earn £80 per week from your first job and £60 per week on your second job. Earnings from both are under the Lower Earnings Limited (LEL) and so you do not need to pay any NI and are recorded as having made no NI contributions. However, if you were to receive your total earnings of £140 per week under one single employment, you would be above the LEL but under the Primary Threshold. This means you are not required to pay any NI but you are recorded as having made NI contributions.
  2. You earn £110 per week from your first job and £90 per week on your second job. Earnings from both are under the Lower Earnings Limited (LEL) and so you do not need to pay any NI and are recorded as having made no NI contributions. However, if you were to receive your total earnings of £200 per week under one single employment, you would fall into the Primary Threshold. This means you are required to start paying NI at 12% and are recorded as having made NI contributions.

It may be in your interest to pay Class 3 voluntary NI to remedy any absent records of NI contributions. This is because you need to accumulate 35 years’ worth of NI contributions in order to be able to access the full state pension.

Examples of overpaying NI when you have more than one job

You earn £700 per week from your first job and £400 per week from your second job. Earnings from both jobs fall above the Primary Threshold but under the Upper Earnings Limit (UEL). This means 100% of your earnings from both jobs are subject to 12% NI. However, if you were to receive your total earnings of £1,100 per week under one single employment, you would fall into the UEL. This means only your earnings of up to £962 per week will be subject to 12% NI and the remaining £138 will be subject to a reduced 2% rate for NI.

To avoid paying too much in NI, you can inform HMRC and request to defer your NI where you know you will go into the UEL across two jobs in advance. Alternatively, if you have already overpaid, you can complete a form to request a refund.

How does a workplace pension work when you have more than one job?

If you are an eligible jobholder for more than one job, your employers are legally obliged to automatically enrol you onto a workplace pension scheme. You are considered an eligible jobholder where:

  • you are aged between 22 and the state pension age
  • earning over the earnings threshold (£10,000 for the tax year 2020/21 but is calculated on a pro-rated basis depending on your pay period)
  • work predominantly in the UK (overseas travel for work is acceptable but you should not be based abroad)
  • have a contract of employment (you are not considered a contractor or freelancer)

You can choose to opt-out of both workplace pension schemes, remain on one or remain on both if you wish. For any workplace pension schemes, you will have to make the minimal contribution of 5% of your earnings. This cannot be split across two different employments.

There is no maximum number of different workplace pension schemes you can be on, however there is a maximum amount of pension contribution you can make before you lose any tax relief. This maximum amount is currently set at 100% of your income with a cap of £40,000.

What happens if you take on additional work when you’re on furlough

More recently, many people have been made furloughed under the Coronavirus Job Retention Scheme. Under the scheme, you have the right to take on work for another employer whilst still receiving 80% of your salary from your primary employer and are not working for them.  Even though you may not be working, you will still be employed by your primary employer and remain on their payroll in order to receive your furlough pay. Therefore, any additional work you take on will be treated as a second job. You will not have a P45 to provide your secondary employers as you have not left your first job. You will instead need to complete a P46 form when you start your secondary job and this is usually provided by the employers. Your tax and NI will be treated as described above.

What happens if you are on a zero-hours contract and take on a second job?

If your primary employment is a zero-hours contract job, then any job you take after will be considered as a second job. This is the case even where you are not working under your zero-hours contract job but are still employed with them. The tax situation in this scenario can be a bit more complicated, and there is a possibility that you will lose out on some of your personal allowance depending on how long you do not receive work from your zero-hours contract job.

There are two main options when it comes to making sure you are taxed correctly in this situation. If you believe that it is likely that most of your earnings will come from your second job, then you can contact HMRC and ask them to review you tax code. They may give you several options such as splitting your personal allowance across two jobs or swapping your tax code so that your second job is treated as your primary employment.

Alternatively, if you believe that you will have no work from your zero-hours contract temporarily, you may choose to continue paying tax on 100% of your earnings from your second job. When you start working for your zero-hours job again, you’ll either receive an adjustment in your tax code so that you receive any missed personal allowance, or you’ll be able to claim a tax rebate at the end of the tax year.

Where you have any concerns regarding your tax code or whether you are paying the correct amount of taxes, you should first get in touch with your HR or Payroll department. Failing that, you may choose to use HMRC’s online tool to check if you’re on the correct tax code. Alternatively, if you are struggling managing your payroll for different types of employees, please refer to our Payroll service page or get in touch with us for support.

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