Got A Second Job? Make Sure You Don’t Underpay Your Tax!

Ok, we all know that many people overpay their income tax and can claim a refund from HMRC. If this is your case, we can help as we are a private registered tax agent with HMRC.

However, be aware that if you are employed and hold more than one job concurrently you could also run the risk of underpaying tax and end up owing money to HMRC at a later date. How is this possible? Let’s take an example.

Make Sure You Don’t Underpay Your Tax!

A friend of a friend is employed full time as a cleaner in a hospital, this is his main job. To make ends meet, about eighteen months ago he took up a second job part time in a sandwich shop. To his surprise, twelve months down the line he was slapped with a bill of over £1,000 from the taxman…! Of course, this came as a shock to him as he didn’t intend to defraud anyone in the first place and he felt hard done (‘gutted’ is actually a more accurate description). He tried to argue his case with HMRC, there was nothing to be done, he had to pay up. But my friend could have taken very simple steps much earlier to avoid such a bad experience. Similarly, if you hold two (or more) jobs at the same time, you can make a few basic checks to avoid the same fate as his example is by no means an isolated incident.

So was my friend hard done by? Yes and no. The problem was that he didn’t realise that he was receiving two tax free allowances, one for each job. This wasn’t his fault, of course, and for that reason he had the right to feel upset (after all, he’s not in charge of payroll!). But by the same token he could have easily spotted the mistake from the onset.

Because HMRC applies the amount of tax free allowance only to your main job, any other employment that you hold concurrently should be taxed at 20% rate. This should be reflected in the tax code on your payslips. For this current 2014-15 tax year, in most cases (if you’re under 66 years of age and do not already have special circumstances, like an outstanding debt with HMRC or a special coding notice due to fluctuating earnings because of substantial bonuses), the correct tax code for your main employment should be 1000L.

This code means that you are entitled to earn £10,000 tax free between 6th April 2014 and 5th April 2015. If you are paid monthly, you will start being charged income tax for each pound you earn over £833 (£10,000 divided by 12 months in the year = £833). If you are paid weekly, then you will start getting charged income tax for every pound you earn over £192 (which is £10,000 divided by 52 weeks in the year).

But remember, you can only receive one tax free allowance at a time, so if you hold more than one employment, you must ensure that the tax code applied against any secondary jobs is BR, meaning that you get charged at the Basic Rate of income tax at 20% for every pound you earn. If for any reason you are given a 1000L tax code for more than one concurrent employment, there is a mistake somewhere… you may be receiving more than one tax free allowance, which is against the law (as well as being unfair for the rest of UK taxpayers).

Make no mistake, HMRC will realise it sooner or later and chase you for repayment. Even if you change addresses or move countries, they will cotton on to your situation and if they feel that you are evading the problem they may take drastic action to recover the unpaid tax. So don’t be naïve and hope that HMRC won’t notice it, they will!

The first lesson here is to CHECK YOUR PAYSLIPS to ensure that the correct tax code is applied. If in doubt, call HMRC or write to them (you can’t email them, unfortunately), explain your work history in detail (mentioning accurate start and finish dates for each job) and ask them to check that the correct tax code has been applied. You’ll normally find Mr Taxman quite helpful when you approach him voluntarily and play fair. More often than not – and depending on your circumstances and the amount in question – any debt you might have accumulated will be deducted from your future earnings (in the following tax year); HMRC will normally amend your tax code for the next tax year so your tax free allowance will be reduced accordingly, until the amount you owe is fully repaid. If at the time of repaying the debt you receive benefits (like Employment Support Allowance or Job Seekers Allowance), they may decide reduce your entitlement accordingly. If however you left the UK in the meantime, you will be requested to repay the whole amount in one lump sum.

The second important point (which wholly depends on you as it is ultimately your responsibility) is that you communicate accurate and correct information to your new employer(s) every time you start a new job. If you do take up secondary employment, tell your new employer that this is a secondary job so HMRC has all the correct information and applies the right tax code from the onset. This will greatly reduce the risk of mistakes from HMRC (because they do not hold correct employment details for you in the first place) and possible heartache in future.

Want to know more?

TaxRefundPro specialise in tax refunds. We are a private company registered as tax agents with HMRC. If you’re unsure you paid the correct tax, call our consultants in all confidentiality for a free no obligation assessment: 0203 137 5773.

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