If you already work full-time, chances are your main income is taxed through the PAYE system. This means your employer is responsible for deducting your Income Tax and National Insurance before you receive your wages. However, when you take on a second job, you’re also responsible for making sure that income is taxed correctly.
Any earnings from a second job are added to your existing income and taxed as part of your total annual income. Whether you’re taking a second employed position or running a freelance business on the side, this additional income must be declared and taxed in line with UK tax laws.
Does a Second Job Mean Higher Tax?
There is a common misconception that a second job is taxed at a higher rate simply because it is additional income. In reality, it’s not the second job itself that causes a higher rate to be applied, but rather the total income you earn across both jobs. If your overall income crosses certain tax thresholds, your combined earnings may be taxed at a higher rate.
Everyone receives a tax-free Personal Allowance. For most people, this allowance is currently set at £12,570 per year. In nearly all cases, this allowance is applied to your main source of income. Your second job, therefore, is typically taxed from the first pound earned. You can request to split your Personal Allowance between two jobs if both are regular and predictable. However, most people allocate the full allowance to their primary job to simplify tax deductions.
Tax is applied in bands. If your total annual income remains within the basic rate threshold of up to £50,270, you’ll pay 20% Income Tax on earnings above your Personal Allowance. Earnings above £50,270 are taxed at 40%, and income exceeding £125,140 is taxed at 45%. So if your primary job brings in £40,000 and your second job adds £15,000, you’ll cross into the higher tax band. This means a portion of your second income will be taxed at 40%.
Tax Codes for Second Jobs
Your main job is typically assigned a tax code that includes your Personal Allowance. The most common tax code is 1257L. Your second job, however, is usually given a BR tax code. This code applies a flat 20% tax rate without any Personal Allowance.
If you earn enough to fall into higher tax brackets, your second job may be assigned a D0 or D1 tax code. The D0 code applies a 40% rate to all earnings from that job, while D1 applies a 45% rate. These codes reflect your overall income position and ensure tax is collected at the correct rate.
Tax codes can also vary depending on whether you live in Scotland or Wales. Codes like SBR, SD0, and SD1 apply in Scotland, while Welsh equivalents are CBR, CD0, and CD1. Incorrect tax codes are a common issue for people with multiple jobs. If you notice a discrepancy or believe you are being over- or under-taxed, contact HMRC to clarify and update your records.
Self-Employment as a Second Income
If your second income comes from freelancing, contracting, or any other form of self-employment, it will not be taxed through PAYE. Instead, you are required to register for Self Assessment and declare your income directly to HMRC. This process involves keeping track of all income and allowable expenses, filing a Self Assessment tax return annually, and paying any Income Tax or National Insurance owed.
HMRC then combines this income with your PAYE earnings to calculate your total tax liability. If your total earnings from employment and self-employment remain within the basic rate threshold, your freelance income will be taxed at 20%. However, if your total income exceeds the higher or additional rate thresholds, the appropriate higher rate will apply.
For example, if you earn £35,000 in a salaried role and £10,000 as a freelancer, your total income is £45,000. You remain within the basic rate threshold, and your freelance earnings will be taxed at 20%. If freelance income pushes your total to £55,000, a portion will be taxed at the 40% higher rate.
National Insurance on Secondary Earnings
Your main job includes Class 1 National Insurance contributions, which your employer deducts through PAYE. If you are self-employed in your second job, you may also need to pay additional National Insurance.
Specifically, self-employed individuals pay Class 4 National Insurance contributions. For the 2025/26 tax year, these are set at:
- 6% on profits between £12,570 and £50,270
- 2% on profits above £50,270
These contributions are calculated and paid as part of your Self Assessment process, along with your Income Tax. If your self-employed earnings are low and fall below the threshold, you may not owe any Class 4 NICs. There is also a small flat-rate Class 2 contribution, though the rules for this have been changing in recent years. It’s important to review HMRC guidance annually to stay up to date.
Registering as Self-Employed
When you begin earning through self-employment, you must inform HMRC. The process begins with registering for Self Assessment online via the Government Gateway. Once registered, HMRC issues a Unique Taxpayer Reference (UTR), which you’ll use to access your personal tax account.
From here, you’ll be able to file tax returns, track payments, and manage your obligations. HMRC typically sends your UTR within 10 working days. Once received, you must complete registration by setting up a login ID and password for ongoing access.
It’s advisable to register promptly after starting self-employment. HMRC expects registration within 28 days of receiving your UTR. Filing deadlines must also be observed, with 31 January being the deadline for online submissions relating to the previous tax year.
PAYE and Multiple Employment Roles
If your second job is also through PAYE, you will need to complete a starter checklist for your new employer. This document provides HMRC with the information needed to assign the correct tax code for the second job.
Your new employer then submits this information to HMRC, who uses it to adjust your tax records. The starter checklist includes questions about your existing employment, previous earnings, and current tax status.
Failing to provide accurate details can result in incorrect deductions. For example, if HMRC believes you’re only working one job, they may apply a full Personal Allowance to both, leading to underpaid tax and a future bill.
Record-Keeping and Organisation
One of the biggest challenges of managing tax across multiple income sources is staying organised. Self-employed individuals are responsible for tracking all income and allowable expenses throughout the year.
It’s important to retain copies of all invoices and receipts, and to match them to corresponding bank transactions. This ensures accuracy when submitting your Self Assessment and helps if HMRC requests evidence to support your claims.
Using spreadsheets or accounting software can significantly reduce stress and improve the accuracy of your financial records. Automated tools can also help you monitor deadlines and track payments.
Common Errors to Avoid
Many people face unexpected tax bills because they assume their second job is taxed automatically in the same way as their first. In reality, your second employer may apply a generic tax code that does not reflect your total income.
Other common errors include failing to register for Self Assessment, underreporting freelance income, or not keeping receipts and financial records. These oversights can result in underpaid tax, penalties, and interest.
To stay compliant, it’s essential to:
- Check your tax code regularly
- Keep accurate records
- Understand how your income is taxed across jobs
- Register self-employed income promptly
Taking these steps will help you avoid stress and ensure your tax is calculated correctly.
Reviewing Your Tax Situation Regularly
Circumstances change. You might leave one job, take on more freelance work, or receive a pay rise. Each of these changes can affect your tax code and the amount of tax you pay. It’s a good idea to review your tax situation periodically.
If your total income increases significantly, you may enter a new tax band. In these cases, your tax code may need to be updated. Contacting HMRC or checking your personal tax account can ensure your records are accurate.
You can also use HMRC’s online tools to estimate your tax bill based on your current income. These tools are useful for planning ahead and making sure you set aside enough money to cover any tax due.
Why Self Assessment Matters for Second Jobs
When you have more than one source of income, especially from self-employment or freelancing, it’s essential to declare that income using HMRC’s Self Assessment system. While most employees rely on their employer to deduct taxes automatically through PAYE, self-employment and other untaxed income sources require individuals to report their earnings directly.
Self Assessment ensures you are taxed appropriately based on your total income. If this second income is not declared, it could result in unpaid taxes and penalties. Whether your additional work is a side hustle, freelance gig, or contract work, registering for Self Assessment and filing your return accurately is a legal requirement.
Who Needs to File?
Anyone who receives untaxed income must file a Self Assessment tax return. This includes self-employed individuals, landlords, company directors, and those who receive dividends or income from abroad. If you have a full-time job and earn money on the side as a freelancer, that income is not taxed automatically, so it must be declared.
You are required to file a return if your untaxed income exceeds £1,000 in a tax year. This applies even if your main job covers all your Personal Allowance and you pay tax through PAYE. Once your combined income exceeds the basic tax threshold, any surplus is taxed at the appropriate higher or additional rate.
Registering for Self Assessment
The first step is to register for Self Assessment. You can do this online via the HMRC website. Upon registration, HMRC will issue a Unique Taxpayer Reference (UTR), usually within 10 working days. This reference is your key identifier when dealing with HMRC and accessing your online personal tax account.
You’ll also need to create a Government Gateway user ID and password, which allows you to log into your account, file returns, make payments, and communicate with HMRC. Registration should be completed well ahead of the tax return deadline to avoid late filing issues.
Deadlines and Penalties
The UK tax year runs from 6 April to 5 April the following year. If you’re filing a paper return, the deadline is 31 October. For online submissions, the deadline is 31 January following the end of the tax year. For example, for the 2024–25 tax year ending on 5 April 2025, the online filing deadline is 31 January 2026.
Missing these deadlines can lead to penalties. The standard penalty for late filing is £100, with additional charges accumulating the longer you delay. Late payments also attract interest, so it’s important to submit and pay on time.
Preparing to File: What You’ll Need
Before filing, gather all necessary documentation to ensure your return is accurate. These include:
- Your UTR and National Insurance number
- Bank statements
- Invoices and receipts for any self-employed income
- Details of income from employment, including your P60 and P45 if applicable
- Records of any other income (e.g., dividends, property, pensions)
- Any allowable expenses you intend to claim
Organising this information ahead of time reduces the risk of errors or omissions in your return.
Completing the Return
When filing your Self Assessment, you’ll enter your personal details, followed by information about each source of income. Your PAYE income is usually pre-populated based on employer submissions, but you should still confirm it against your P60.
For self-employed income, you must report your total earnings and allowable expenses. HMRC calculates the profit by deducting expenses from your revenue. You then pay Income Tax and Class 4 National Insurance on that profit.
If your side income is from property rental, dividends, or capital gains, the return includes specific sections for each of these categories. Make sure you complete the right sections to reflect all your sources of income.
Claiming Allowable Expenses
If you are self-employed, you can deduct allowable expenses from your income to reduce your tax bill. These include:
- Office supplies and equipment
- Travel and mileage costs for business purposes
- Marketing and advertising
- Home office costs (a proportion of household bills)
- Professional fees and subscriptions
- Insurance and bank charges
It’s crucial to keep detailed records of each expense. Only costs that are wholly and exclusively for your business can be claimed.
How Self Assessment Tax Is Calculated
HMRC calculates your tax liability by combining your PAYE income and other income streams. The Personal Allowance applies to your total income, but in practice, it’s typically used up by your PAYE income. This means your self-employment profits are usually taxed in full.
After subtracting any expenses and allowances, the remaining amount is taxed at the applicable rates:
- 20% on income between £12,571 and £50,270
- 40% on income between £50,271 and £125,140
- 45% on income above £125,140
Self-employed individuals also pay Class 4 NICs, at 6% on profits between £12,570 and £50,270 and 2% above that.
If you owe more than £1,000 in tax, HMRC may request payments on account. This means paying part of your next year’s tax bill in advance, in two equal installments due on 31 January and 31 July.
Paying Your Tax Bill
You can pay your tax bill online via your Government Gateway account using debit or credit cards, bank transfers, or through direct debit. Ensure payment reaches HMRC by the 31 January deadline to avoid interest.
Some people choose to spread payments using HMRC’s budget payment plan or apply for a Time to Pay arrangement if they can’t afford to pay in full. These options must be arranged before the deadline.
National Insurance for Self-Employed Workers
In addition to Income Tax, self-employed individuals must pay National Insurance. Class 2 contributions may no longer be required, depending on your earnings, but Class 4 remains an important component.
For the 2025/26 tax year:
- Class 4 NICs are 6% on profits from £12,570 to £50,270
- 2% applies to profits above £50,270
These amounts are calculated and added to your Self Assessment tax bill.
Keeping Accurate Records
HMRC requires you to maintain accurate records of your income and expenses for at least five years after the 31 January filing deadline. These include bank statements, invoices, receipts, and mileage logs.
Failing to keep records may lead to penalties or difficulty justifying expense claims. Consider using accounting software or a spreadsheet to track income and outgoings. Organising documents throughout the year can save time and reduce stress at tax return time.
Combining PAYE and Self-Employed Income
Combining income from PAYE and self-employment requires careful planning. While your employer takes care of PAYE tax, your self-employed income must be managed by you. HMRC considers both incomes together to determine your overall tax rate.
This means your tax-free allowance may be fully used by your job, leaving your self-employment profits fully taxable. Understanding this interaction is vital to budgeting correctly for your tax bill.
You may receive a revised tax code if HMRC decides to collect some of the tax due on your self-employment via your PAYE job. This is known as coding out tax. It’s important to check your code if this happens to avoid surprises in your take-home pay.
Communicating with HMRC
It’s vital to inform HMRC of any changes to your employment or income situation. Whether you start or stop freelance work, become unemployed, or receive other untaxed income, HMRC must be kept up to date.
You can update your employment details, address, or income estimates through your personal tax account. Failure to notify HMRC can lead to incorrect tax codes and potential penalties. If you think your tax code is wrong or you’ve received an unexpected bill, you should contact HMRC as soon as possible. They will review your records and make necessary corrections.
Planning for the Future
Understanding your tax obligations helps avoid unexpected bills and ensures you stay compliant. If you continue earning income from more than one source, planning ahead becomes essential.
Set aside money regularly to cover your tax bill, especially if you are self-employed. Use HMRC’s online calculator to estimate how much tax you will owe. This allows you to budget effectively and avoid being caught off guard. If your tax bill is large, you may also need to make payments on account. Understanding this in advance ensures you’re not surprised by a second tax demand mid-year.
Understanding the Complexity of Multiple Income Streams
Earning from more than one source can improve financial stability, but it also introduces more responsibility when it comes to staying tax compliant. Whether you’re juggling two PAYE jobs or combining employment with self-employment, managing tax across different income streams requires careful attention to reporting, documentation, and deadlines.
If income sources aren’t clearly tracked or reported, taxpayers may end up with underpayments, overpayments, or fines. Understanding where common challenges occur is the first step toward avoiding them.
Overlooking Tax Obligations
One of the most frequent issues for people with second incomes is the assumption that all taxes are automatically taken care of. While PAYE does handle deductions from your main job, any untaxed income—such as freelance work or rental income—must be reported to HMRC.
Failing to declare this additional income can result in penalties, particularly if HMRC considers the omission deliberate. It’s crucial to understand that all earnings, regardless of their source, are added together to calculate your total annual income and determine your tax rate.
Misunderstanding Tax Codes
Tax codes determine how much tax is deducted from your earnings. Your main job will usually benefit from the standard Personal Allowance and an associated tax code, such as 1257L. However, second jobs typically receive a BR (basic rate) code, taxing all income at 20% with no allowance.
When income levels push you into higher tax bands, codes like D0 (40%) and D1 (45%) are used. Misapplication of these codes, especially by employers unaware of your full financial picture, can lead to over- or under-taxation. If you see unexpected changes in your take-home pay, it may be due to an incorrect tax code. Regularly checking your tax code via your personal tax account and updating HMRC with any changes in your employment status can help avoid problems.
Missing Self Assessment Deadlines
For those who are self-employed, Self Assessment is mandatory. Missing the key deadlines—31 October for paper returns and 31 January for online submissions—leads to penalties. The initial fine is £100, and additional penalties accrue the longer the delay continues.
In addition to submission deadlines, payment deadlines are also crucial. If your bill is not paid in full by 31 January, interest begins accruing immediately. Payments on account, if applicable, are due in two installments—31 January and 31 July. Keeping a calendar of tax-related dates and setting reminders can prevent last-minute stress and financial penalties.
Forgetting to Budget for Tax Payments
Employees under PAYE rarely think about setting money aside for tax, as it’s already deducted. However, when you earn additional income outside of PAYE—especially from freelancing, consulting, or selling goods—you’re responsible for putting aside enough money to cover your eventual tax bill.
A common mistake is to treat second income as extra spending money, only to be hit with a large tax bill in January. A good practice is to reserve at least 20% to 30% of any untaxed income for tax purposes. If your total income exceeds higher-rate thresholds, save more accordingly. Using a separate bank account to store tax reserves can help ensure funds are available when needed.
Inadequate Record-Keeping
HMRC requires you to retain tax records for at least five years after the 31 January deadline for the relevant tax year. Records must include all invoices, receipts, bank statements, and mileage logs where applicable.
Poor record-keeping often leads to missed deductions, inaccurate submissions, or the inability to defend claims during an HMRC investigation. Good documentation also supports claims for allowable expenses, which reduce your taxable profit. Creating a consistent system for logging income and expenses—whether via spreadsheets or accounting software—can simplify the entire tax process and save money.
Confusing Allowable and Disallowable Expenses
While claiming business expenses is a legitimate way to reduce your tax bill, confusion around what qualifies often leads to mistakes. Only expenses that are wholly and exclusively for business purposes can be deducted.
Common allowable expenses include travel for work, home office usage, business-related subscriptions, and equipment. Costs that mix personal and business use, like mobile phone bills or meals, require careful handling.
Disallowed expenses, such as personal clothing or leisure travel, must never be included. If HMRC audits your return and finds inaccuracies, you may face penalties and repayment demands.
Overlooking Payments on Account
If your Self Assessment tax bill exceeds £1,000, HMRC may require you to make advance payments toward the following year’s tax bill. These are called payments on account and are due in two equal installments.
Many people are unaware of this rule and assume that once their January payment is complete, they are finished for the year. However, the July payment can come as a surprise, especially if your income was higher than expected. Review your tax summary each year to see if payments on account are required and factor these into your budgeting.
Not Checking Employer Submissions
Your employer submits information about your income and tax paid directly to HMRC. Mistakes can happen, especially if you change jobs during the tax year or take on multiple roles. Your P60 and P45 documents summarise your earnings and should be reviewed carefully.
Discrepancies between your records and HMRC’s data can result in tax code errors or incorrect tax bills. You can view your submitted pay and tax details by logging into your personal tax account. If figures appear wrong, contact your employer or HMRC to rectify them as early as possible.
Employment Contracts and Side Work
Before starting a freelance job or side hustle, check your employment contract for any clauses that restrict secondary employment. Some employers prohibit working for competitors or require approval before taking on additional work.
Violating these terms could lead to disciplinary action. Even if not explicitly banned, ensure your additional work does not interfere with your main job’s responsibilities or working hours. Keeping transparency with your employer avoids potential conflicts and ensures that you can manage both roles without legal or contractual issues.
Handling HMRC Investigations
Occasionally, HMRC may initiate a compliance check or investigation into your tax affairs. This is more likely if your return includes unusual figures, large expense claims, or discrepancies between different income sources.
If selected, you may be asked to provide records or explanations for your reported income and expenses. Being prepared with accurate and organised records makes the process smoother. Respond to HMRC inquiries promptly and professionally. Ignoring communication or failing to provide documentation can escalate the situation.
Tax Planning Strategies
Once you have multiple income sources, consider taking a more strategic approach to tax. Tax planning involves forecasting income, estimating future tax liabilities, and making decisions that reduce your tax burden legally.
This could include increasing pension contributions, using the Marriage Allowance if eligible, or spreading income across tax years to stay within lower bands. In some cases, forming a limited company or partnership may offer advantages. It may also be worth reviewing if you’re claiming all the reliefs and deductions available to you. This includes trading allowances, home office deductions, and any industry-specific allowances.
Keeping Digital Records
As HMRC continues its shift towards Making Tax Digital, the requirement for maintaining digital records is becoming more important. Although full implementation has been delayed for many self-employed taxpayers, future compliance will likely require digital submissions and real-time record-keeping.
Getting into the habit of maintaining digital income and expense logs prepares you for future changes and can streamline current filing processes. Digital tools reduce human error, provide visibility over your finances, and offer automation features that make compliance easier.
Adjusting to Income Fluctuations
For freelancers or those with seasonal work, income can vary significantly throughout the year. This unpredictability makes it more difficult to plan for tax payments. A good approach is to estimate your annual income based on prior years, then set aside a percentage of each payment received.
Even during slow periods, continue tracking your finances carefully. Use any surplus from high-earning months to build a reserve for slower periods or future tax bills. By taking a conservative approach to savings and keeping detailed financial records, you can better manage income volatility and still meet your tax obligations on time.
Long-Term Compliance and Peace of Mind
Staying compliant with HMRC doesn’t need to be complicated. The key lies in maintaining organised records, understanding your obligations, and planning ahead.
Tax compliance also helps you avoid the stress of unexpected bills, missed deadlines, or legal troubles. As your income grows and changes over time, reviewing your situation annually ensures you’re claiming the right reliefs and paying the right amount of tax.
Whether your second income is a long-term business, a freelance passion project, or a temporary boost to your finances, handling your tax responsibilities with care sets the foundation for financial stability and growth.
Conclusion
Earning income from a second job can be an excellent way to improve financial security, but it brings with it a host of tax responsibilities that should never be overlooked. Whether your secondary earnings come from regular employment, freelancing, contracting, or a side business, HMRC expects full transparency. All income no matter how small is subject to Income Tax and potentially National Insurance, and these amounts are calculated based on your combined annual earnings.
While tax is not charged at a higher rate simply because it’s a second job, the total income may push you into a higher tax bracket, increasing your overall liability. Most people’s Personal Allowance is used by their main employment, meaning secondary income is often taxed from the first pound. If you’re freelancing or self-employed, registering for Self Assessment and maintaining accurate records is essential for meeting your tax obligations and avoiding penalties.
Understanding how to file a Self Assessment tax return, track expenses, and manage payments on account can make a significant difference in staying compliant and reducing the risk of unexpected bills. Using the correct tax code, budgeting for future payments, and keeping HMRC informed of changes in income or employment all contribute to a smoother tax experience.
The process might feel complex initially, especially if you’re new to handling multiple income streams, but staying organised and proactive can turn tax compliance into a manageable task. Planning ahead, seeking guidance when needed, and embracing good financial habits ensures you meet your obligations without stress or last-minute surprises.
In the end, paying tax on a second income is simply about understanding the rules and applying them correctly. With the right information and approach, you can stay on top of your finances and make the most of your additional earnings.