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National Insurance and Income Tax

By: Chris Nickson - Updated: 28 Jan 2015 | comments*Discuss
 
Extra Income Second Income National

As they say, only two things in life and certain, death and taxes. There’s no way to avoid either of them, and it’s legally better not to try and avoid paying your taxes – even if they’re on a second income. But it doesn’t stop there; there’s also National Insurance to consider. Sometimes, even when you’re working two jobs, it can seem as if it’s the Inland Revenue is eager to take all your money, but these things are necessary.

National Insurance

If you take a second job with an employer, they still need to deduct National Insurance contributions from your salary, as long as your earnings are above the Earnings Threshold. However, if you make more than the Upper Earnings Limit, you can defer some of your contributions to avoid paying too much, and mean you avoid having to claim a refund. But if you find you have paid too much, you can claim a refund from HM Revenue and Customs, although you’ll need to provide proof in the form of pay stubs and P60 forms.

If your extra work means you’re self-employed, you’ll pay Class 2 National Insurance contributions. However, you’ll first of all have to register as self-employed, after which you’ll be billed quarterly or can pay by direct debit. Note that you are charged for every week, which includes holiday periods. Class 2 contributions count towards your basic state pension and other benefits.

Taxes

When you have a second job with an employer, just like National Insurance, taxes will be deducted at source from your gross pay. You’ll need to fill out a P46, which tells the new employer you also have another job.

Having two jobs doesn’t double your annual personal allowance, sadly. However, you can split it between employers, as long the income from your second job is less than your annual personal allowance.

You do need to look at the tax code. If it says BR, that means the basic rate of 22%, which is quite common for a second job. However, you might also find DO, which is what you see when all your income is taxed at the higher rate of 40%. But codes can be quite complex, and if you have any questions, probably the best stay is to talk to the employer’s pay office. The tax code should also be on your P45. If you don’t have one (your current main employer will keep it), then you can call the tax office and give your National Insurance number and tax reference number, and they’ll give you the details.

There are certain circumstances, such as age or marrying, that will affect the amount you pay in tax, so if these do change, be sure to notify your employer and the tax office, who will produce a “notice of coding” to reflect the change.

Students

Things are a little different for students. If you work during term time, you’ll pay tax and National Insurance, the same as anyone else. However, you’ll only owe tax if you make more than a certain amount (currently £5,035 in the tax year). Likewise, if you’re self-employed, you’re treated exactly the same as other self-employed people. But those rules change if you just work during the holidays, so be aware of that.

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@schofie - I'm a bit confused by your question, but he will be entitled to his personal allowance of £10,000, His second job willwill be taxed in full at 20%. He will need to check his PAYE code and make sure the HMRC has the correct one. I hope this helps.
ExtraIncomeAdvice - 29-Jan-15 @ 2:49 PM
Hi my grandson works 32+ hours a week as well as 2 days a week at college, is he allowed to work and claim the higher tax ie 10000 or only 5035 he is 18.might be thick but I am confused by the different tax advice on various websites
schofie - 28-Jan-15 @ 5:48 PM
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