PAYE with two jobs/pensions
Employee tax codes and National Insurance
If you have more than one job as an employee, you need to check that your PAYE code is correct for each job. This is because the system is designed to treat one job as your main employment (against which your personal allowances will be given in full) and the other jobs as secondary (which are taxed in full at 20%). The same principle applies if you have more than one pension (or both an employment and pension).
But this system does not always mean that you pay the right amount of tax. This may be either due to a) a failure in the PAYE processes by employee, employer or HMRC or b) because of complications with your personal circumstances. For example:
Your personal allowance is being allocated against one job/pension but you actually have more than one job/pension:
- If HMRC are not aware that you have two employments, you may have been given the standard tax code for both jobs, and so be getting two tax free personal allowances (one against each income). This would happen, for example, if you have two jobs and both jobs have a 1100L code in 2016/17. You will not then have paid enough tax
- If you have two jobs and your total taxable income from employment (after deducting your personal allowance) is greater than £32,00 in 2016-17, then you will be a higher rate taxpayer. This means that deducting tax at basic rate (a BR code) on any second employments at the basic rate may not be enough. You would need to contact HMRC, who should issue a tax code of DO so the second job is taxed at 40% rather than at 20%. The position will be more complicated if your second job / pension should be taxed partially at the basic and partially at higher rates of tax. (There is also a code D1 which charge which can be use to charge 45% additional rate tax on a second job)
To avoid these situations, you should check that you have not been given your tax free pay in the PAYE code for both jobs. Also, make sure the tax office know about the second job (or pension). If you don’t make sure the situation is correct, it could take some time before HMRC spots the error and sends you a bill – by which time a large tax underpayment could have built up.
You are earning less than your tax free personal allowance in your main job:
If you have two jobs, but neither with income as large as your personal allowance (£11,000 in 2016-17), then simply giving all your tax free pay to one job will not work. This is because giving your tax free personal allowance in full against one job will leave some of your tax free allowance unused. You will then pay too much tax if a BR code is used for your second employment/pension.
Josh has two jobs. He earns £100 per week in his main job and £90 per week in his second job. The tax code used for his first job is 1100L – giving him £212 per week tax free pay (1/52nd of £11,000). This means he is paying no tax on his first job. The standard tax code for his second job (using the new employee starter checklist) is BR – taxing all his earnings at 20% (£18) and giving him no tax free pay on that job.
Josh is missing out on £112 of tax free pay each week (£212 due, less the £100 used by the main job). So he is paying £18 too much tax each week. Josh is paying £18 a week in tax, but he should be paying nothing. To correct this, he would need to ask HMRC to divide his personal allowance between both jobs. If he does this he will need to keep HMRC updated with any changes or he could pay the wrong amount of tax later in the year.
There are two possible solutions to this problem:
1) You may ask your tax office to divide your personal allowance between two jobs. Only do this if your income from each job is predictable and stable. You also need to review the position regularly to ensure that the split continues to be appropriate
2) You may wait until the end of the tax year and ask HMRC for a refund, or wait for HMRC to carry out their tax year-end reconciliation of employers returns – in which case you should be sent a P800 tax calculation and a repayment in July / August after the end of the tax year. If you are asked to send in the P60 forms from all your jobs to HMRC, make sure that you take copies of the P60s for your records
You receive the state pension:
If you receive the state pension, and either work or have a separate occupational or private pension then your tax code will be quite complex. The Department of Work and Pensions do not operate PAYE on the state pension, so no tax will be deducted from your state pension at source – even though it is taxable income.
An estimate of your state pension is deducted from the tax free personal allowance available to your main employment or pension. This leaves less tax free pay available for this source of income.So the employment or occupational pension bears the additional tax due on the state pension.
If you have any other employments or pensions these should be given the BR code in the normal manner. You may need to ask HMRC to explain the code to ensure that it is correct.