Multiple sources of employment and/or pension income or state benefits
You may have more than one source of ‘earned’ income, either when you are serving in the armed forces or once you have left the armed forces. In this section, we look at various scenarios in which you might find yourself and explain the tax position.
You may have to ask permission from your employer as to whether you can take on another job or carry out self-employed work.
I am serving in the armed forces but have a second job; what is my tax position?
You may be self-employed or have a second employment at the same time as your job in the armed forces. This may be either because:
- you are a reservist; or
- you are a permanent member of the armed forces but have permission to have a separate job.
I have left the armed forces but they are still paying me a regular monthly income and I also have a job; what is my tax position?
You may have left the armed forces but be receiving taxable monthly payments under either the Early Departure Scheme or a service pension whilst at the same time you are self-employed or in employment. How you are taxed depends on whether you are self-employed or employed.
I have left the armed forces but they are still paying me a regular monthly income and I receive taxable state benefits; what is my tax position?
You may have left the armed forces but be receiving taxable monthly payments under either the Early Departure Scheme or a service pension whilst at the same time you are also receiving taxable state benefits such as Employment and Support allowance (ESA) or Jobseeker’s Allowance (JSA).
Although the Department for Work & Pensions operates a modified Pay As You Earn (PAYE) scheme when paying taxable ESA or JSA payments, it does not deduct tax from them. If your taxable service payments plus the ESA and/or JSA that you receive are more than your personal allowance you will have to pay tax.
HMRC reconcile everyone’s tax position at the end of the year, and if you owe tax they will send you a form P800 or a simple assessment to collect it. You can find out more about tax as an employee in the ‘employed section’ of our website.
If you are self-employed you will need to fill in a self assessment tax return each year and pay any additional tax, National Insurance contributions (NIC) and student loan repayments under the self assessment system.
You will have to budget for the tax and NIC that you will have to pay on your profits. How much you need to save to pay this additional tax and/or NIC will depend upon
- how much you receive from your service related income; and
- the net profit you make from your self-employment.
If your service related income is more than your personal allowance then you will need to save at least 20% to pay the tax. You may also need to pay Class 2 and Class 4 NIC.
If your service related income is less than your personal allowance then the balance can be used against your self-employment income and you will need to pay at least 20% tax on the balance as well as Class 2 and Class 4 NIC.
You can find out more about self-employment and the self assessment system in the ‘self-employment section’ of our website. You can find out more about NIC in the “What National Insurance do I pay?” section of our website.
If you have a second employment HMRC will generally allocate your personal allowance to your main employment – normally the job which pays you the most money. The other job will then have a different PAYE code allocated to it; in most cases this will either be a BR or a D0 code. If it is BR then tax will be deducted at the basic rate of 20%. If it is D0, it means tax will be deducted at the higher rate of 40%.
If you live in Scotland and are a Scottish taxpayer, different income tax rates and bands apply to your earned income. There is more information in our section on Scottish income tax.
One of the most common causes of an individual owing tax to HMRC at the end of the tax year happens when an individual has two jobs during a tax year and the full personal allowance is allocated against both jobs. So
- if you have two jobs at the same time and you earn more than the personal allowance in your main job, make sure that the PAYE code used to deduct tax on your second job is either BR or D0 depending on how much you expect your total income to be during the year; and
- if you have two jobs one after the other during the tax year make sure that the second job is either
- operating PAYE based on the income and tax which relates to your first job; or
- on a month 1 or week 1 basis.
Always query any unexpected refund of tax that you receive through the PAYE system. HMRC reconcile everyone’s tax position at the end of the year and if you owe tax they will send you a form P800 or simple assessment to collect it. You can find out more about tax as an employee, including PAYE codes, in the ‘employed section’ of our website.
If you have any queries relating to your notice of coding, form P800, simple assessment or other tax matters you can contact HMRC. You can find out more about NIC in the “What National Insurance do I pay?” section of our website