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Wondering how to work out tax on a second job? If you’re joining the growing trend of running a small business on the side, it’s important to make sure you’re paying the right tax.
Perhaps you’re in need of additional income due to the challenging economic climate we’re living in, or you want to turn a hobby into a business. Maybe you’ve even found a passive income stream. Whatever your reason for working a side hustle, it’s important that you’re clued up on the tax implications of having two jobs.
The amount of tax you pay depends on how much you’re earning in both your jobs, whether you’re employed and self-employed or just have two businesses.
Key things to look for:
Read on to find out about side hustle tax, and what self-employed tax and National Insurance you need to pay if you're both self-employed and employed.
If both of your jobs pay you through PAYE then you won’t need to tell HMRC. Your tax will be worked out based on your combined income. Bear in mind though, having a second job could put you into a higher tax bracket.
Paying tax on a side business works differently if you’re self-employed. You’ll be able to earn a certain amount before paying any tax on your side hustle.
We explain more about tax on second income rules below.
Legally, there isn’t anything stopping you from working two jobs. You don’t have to tell your employer, but it can be a good idea to make sure there’s nothing in your employment contract that would prevent you from starting your own business – if there’s a conflict of interest, for example.
It’s worth remembering that if you choose to register as a limited company your business will appear on Companies House and information will be public anyway.
It’s possible to be self-employed and work a full-time job. This can be a good idea to reduce any financial risk while you’re building your business.
If you’re still weighing up the pros and cons of being your own boss and taking the leap into the world of contracting, read our tips on going self-employed.
You’re allowed a £1,000 tax-free trading allowance, which means you don’t need to tell HMRC about any income until you make more than that in one tax year. However you may still want to register as self-employed as it can have other benefits.
This is separate to any income you make through your employed job.
When it comes to starting a business (even when you still have a main job), one of the first things you’ll need to do is register as self-employed with HMRC – you’ll need to do this before 5 October to avoid any penalties.
This is so you pay the right amount of side hustle tax, as this income won’t be taxed through PAYE.
Income tax is levied on profits or income in each tax year. This is based on combined income from both your main job and self-employment. So this could mean your profits as a sole trader push you into a higher tax band.
As an employee, your payslip will show how much income tax you pay and this will be automatically deducted from your salary. However you’ll need to also detail this on your Self Assessment tax return so HMRC knows what you’ve already paid.
If your second job is also on an employed basis, you’ll usually pay income tax at a basic rate on earnings over the £1,000 threshold.
As a self-employed person paying tax on a second income, you’ll need to work it out slightly differently. This is because income tax is based on your profits and you can deduct things like allowable expenses.
HMRC has a second job tax calculator to help you work out what you’ll need to pay on your side hustle.
The example below is based on 2022-2023 tax year rates detailed on gov.uk. Note that there are slightly different rates if you live in Scotland.
Income from employment
Profits from self-employment
Personal allowance (tax free)
Income tax to pay at 20% rate
Read our guide to income tax to understand more about the tax rates when you're self-employed.
Tax is complicated and this article is intended as a guide. If you aren’t sure, it’s best to seek financial advice from a professional.
As with income tax, your National Insurance Contributions (NICs) will come out of your salary automatically through PAYE. This is known as Class 1 National Insurance.
You’ll also need to pay National Insurance on income from your side business. You’ll pay Class 2 NICs if your profits are £6,475 or more a year, and Class 4 NICs if your profits are £9,501 or more a year – our National Insurance guide for the self-employed goes into more detail on rates and thresholds.
The government website also has a tool for you to check your National Insurance record.
You can claim allowable business expenses on your side business just as you would as a sole trader without another job. This means you can deduct certain costs – such as office supplies and travel – from your annual turnover and only pay tax on your taxable profit.
If your second job is on a self-employed basis, you’ll pay tax through Self Assessment and won’t need a tax code. You will however have a tax code for your employed job. This is because tax codes are part of the PAYE system and used by HMRC to tell your employer how much tax to deduct from your pay.
Read our guide to tax codes for more information.
Popular side jobs can be anything, from home baking or jewellery making to running a courier business. To get set up, check out these guides:
Getting your head around business admin, legal and financial responsibilities, and important licences can feel overwhelming. These guides are created to help you understand every step to setting up your side business:
Do you have a side hustle? Let us know in the comments.
Catriona Smith is a content and marketing professional with 12 years’ experience across the financial services, higher education, and insurance sectors. She’s also a trained NCTJ Gold Standard journalist. As a Senior Copywriter at Simply Business, Catriona has in-depth knowledge of small business concerns and specialises in tax, marketing, and business operations. Catriona lives in the seaside city of Brighton where she’s also a freelance yoga teacher.
We create this content for general information purposes and it should not be taken as advice. Always take professional advice. Read our full disclaimer
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