Taking on an extra job? Check your tax!
The coronavirus pandemic has meant that some jobs have stopped in their tracks, while other industries need extra staff. If you take on an extra job, especially if it is only temporary, your PAYE tax deductions can get in a muddle.
The first thing to say is that how PAYE works can be confusing at the best of times (so much so, we have made a factsheet to help to try and explain it). However, most people who have been furloughed so that their employers can claim a Coronavirus Job Retention Scheme grant, and who don't take on an extra job, should just be receiving their pay as normal (albeit perhaps at only 80% or the capped amount), so PAYE should just continue to work as normal.
⚠️ An important point
If you have been furloughed so that your employer can claim a Coronavirus Job Retention Scheme grant, the scheme’s guidance confirms that if your existing employment contract allows it, you can work for another employer or agency while you are on furlough.
The limitations on working while you are on furlough apply only to working for your existing employer or agency or another employer ‘linked or associated with your organisation’. We have noticed a great deal of confusion amongst employers and employees on this point.
What should happen when I start a new job?
Often, when you start a new job, you will have finished with a previous employer first. This means that you should have a P45 from the old job to hand to your new employer. This will help your new employer to get your tax right, as they can carry on using the PAYE code (or ‘tax code’) that was being used by your old employer.
When you start a new job and you haven’t left an old job, you will not have a P45. Your new employer should ask you to complete a Starter Checklist (this used to be known as a P46).
You should complete the Starter Checklist or provide the relevant information your employer has asked you for, as soon as possible before your first payday, so your employer knows what tax code to use. If you do not provide this information, you could end up paying the wrong amount of tax.
It is important that you complete the Starter Checklist correctly. A major cause of tax problems for those in employment is the incorrect completion of the starter checklist – in particular picking the wrong employee statement (A, B or C). You can read more about this in our news piece Why completing a starter checklist CORRECTLY when starting a new job really does matter!.
What if I have been furloughed and take on additional work?
If you have been furloughed from your normal job and you take on additional work with a new employer in the meantime, you will have two sources of employment income at the same time.
Your existing job, from which you have been furloughed, is likely to still be your main job and you should continue to receive some pay from it under the Coronavirus Job Retention Scheme.
Your new job should therefore be treated as a second job so the appropriate box to tick on your Starter Checklist is box C. This will ensure that your earnings from your second job are taxed at the flat rate of 20% - we explain more in our factsheet on multiple jobs.
If you are on leave from your first job but are not being paid (perhaps because you were not on your employer's payroll at 19 March and therefore do not meet the Coronavirus Job Retention Scheme criteria), read the comments below about zero-hours contracts, as a similar situation will apply to you.
What if I am on a zero-hours contract and take on a second job?
This could be a slightly different situation from that above. For example, let’s say you are normally on a zero-hours contract and have not been furloughed but have instead simply not been given any work to do. In this situation, you would not have any income from your usual job, but would have earnings from your new job.
However, if you still have the original zero-hours contract in place, with the way the Starter Checklist is worded, you should tick box C – that is, that this is a second job. A flat rate of 20% tax will therefore be applied to your new job.
If the reality is that all or most of your earnings are likely to come from the new job for the time being, you can contact HMRC and ask them to review your tax codes. For example, they might be able to split your personal allowances between your jobs (as is covered in the factsheet on multiple jobs) or switch your codes around to treat the new job as your main source of employment income (against which you are given the full use of your personal allowances), and the old job as a second source.
If they do this, you will likely get most or all of the 20% tax you have already paid back, so it will give you a cash flow benefit. But things could get very complicated if your first job starts back up again and your extra job finishes because you will have now used up a proportion of your personal allowances. HMRC will, no doubt, try and adjust your tax code for this, but you could end up under or overpaying tax by the end of the tax year, so you need to be aware of this risk.
Alternatively, if you can afford it, it may be simpler and easier if you keep your tax codes as they are and just pay tax on your new job at 20%, particularly if you know if it is only temporary. When your first job starts back up again, you will be given the benefit of all your unused personal allowances from the period you weren’t working, meaning it could be some time before you pay any tax – and you may even be due a tax rebate at the end of the year.
Amy works in a restaurant on a zero hours contract. She isn’t furloughed but is simply told by the restaurant in March that there is no work for the foreseeable future. In April, she gets a temporary job in a supermarket to help tide her over, earning about £800 a month. By ticking box C on the Starter Checklist, the supermarket will withhold tax on her pay at a flat rate of 20%, so around £160 a month.
When Amy starts working in the restaurant again, say, in August, she will have 5 months of unused personal allowances to use against her August pay. This will likely mean that she will pay no tax in August, and as the excess is carried forward and added to next month's chunk of personal allowances, she may not pay much tax for the next few months either.
If, at the end of the tax year, Amy hasn't earned more than £12,500 in the restaurant and so has some spare personal allowances, these will be allocated against her other income and she should get back some of the taxes that she paid in the supermarket.
And finally… keep an eye on your tax codes!
As time goes by, things might change again. You might stop your temporary or second job and go back to work for your original employer when the coronavirus situation starts to normalises, as we cover above.
Or unfortunately you might be laid off your first job, meaning that your temporary or second job becomes your main source of employment income (assuming you haven't already switched them over, when HMRC get the P45 from your first employer, they should be able to change the tax code on your second job to give you the benefit of your personal allowances).
Keep checking your PAYE tax codes as time goes by, so that you can help make sure the right tax is being deducted as closely as possible.
Contact HMRC if you are not sure.
If you still end up paying the wrong tax by the end of the tax year, HMRC should review your record and send you a P800 calculation – our guidance explains further how to check these.
Contact: Kelly Sizer (click here to Contact Us)