QUESTION: I work for a local retail business that has been adversely affected by Covid-19. I have spent a lot of the last 18 months not working. Now that I am back working, I have been offered a second job to supplement my income. I would like to understand the tax implications on taking on this second job?
ANSWER: 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 so that you can ensure you are not paying too little or too much tax.
There are tax, national insurance and benefit issues to be aware of when taking on an extra job. If you’re already employed by an employer, you will already have been added onto their PAYE system.
You only have one tax free personal allowance per tax year and the number of jobs you have does not affect this. In 2021/22, the personal allowance is £12,570. The PAYE system is designed to treat one job as your primary employment (against which your personal allowance will be given in full) and the other jobs as secondary (which are taxed at the basic rate of 20 per cent).
This means that you should see a code number of 1257L (reflecting a tax-free personal allowance of £12,570 for the tax year 2021/22 with the last digit removed and a letter added) against one job and a BR (basic rate) code against the others.
Because most people pay tax at 20 per cent (you would have to have total income of over £50,270 in 2021/22 to pay tax at any more than 20 per cent), the system outlined above helps ensure that you will not underpay tax. But this system sometimes falls down if HMRC are not aware that you have multiple employments, then you may be given the tax-free personal allowance more than once.
You will then not have paid enough tax. To prevent this happening, you should make sure HMRC know you have more than one job by always giving your new employer HMRC’s starter checklist (you will not be able to give them a P45 when taking on an extra job). Even when you have told HMRC about your circumstances, you should ensure you check your PAYE coding notices carefully.
The way the PAYE system works if you have more than one job means that you might overpay tax if the earnings from your main job actually add up to less than the personal allowance. In this situation you will have paid tax at 20 per cent on too much of your other income.
If this happens to you, you will probably have to wait until the end of the tax year and ask HMRC for a refund, or wait for HMRC to carry out their tax year-end reconciliation process – in which case you should be sent a P800 tax calculation and a repayment in July/August after the end of the tax year.
In addition to paying income tax from your salary, other deductions include national insurance (NI) contributions, which are a tax that pays for state benefits. 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.
The pandemic has put a strain on many people’s finances, with more people taking on second jobs to make ends meet. If you are considering taking on a second job, it is important to know your rights and responsibilities when it comes to paying tax.
:: Malachy McLernon (m.mclernon@pkffpm.com) is a director of PKF-FPM (pkffpm.com). The advice in this column is specific to the facts surrounding the question posed. Neither The Irish News nor contributors accept any liability for any direct or indirect loss arising from any reliance placed on replies.
