3 things you can do to make money from home
The number of people who work a second job has increased by 85,000 since 2006. With rising house prices, and other increases in the cost of living, this is expected to rise further still.
Many people are confused by the second income tax implications, which may deter some from going ahead with a second job. In this post, we’re going to look at 5 things to consider when deciding whether a second job is right for you.
So, we’ll start things off with a basic point, but it’s important to consider as it can be confusing.
As you’re aware, you receive a tax allowance which is decided by the government each year. This is an amount of money that you can earn and is exempt from tax. Currently, that figure is £11,500 – so if you earn £15,000 per year, you’ll only pay tax on £3,500 of that.
But it’s important to remember, that it is one allowance, per person, no matter how many jobs you work.
There is one slight exception to this however. The Marriage Tax Allowance means that if you or your spouse earn less than the tax threshold of £11,500 you can transfer up to £1,150 of your tax allowance to your spouse, reducing their tax by an extra £230 during the tax year.
The partner claiming the extra tax allowance must earn between £11,501 and £45,000.
Quite often, because tax confuses people, they leave it upto the tax man to sort out. The assumption is that if they have your tax code wrong, then you will receive a tax rebate at the end of the tax year.
However, by working a second job, if you fail to declare it, you could end up not paying enough tax. This could be for a few reasons:
If HM Revenue & Customs is unaware that you have a second job, it is possible that your personal allowance is applied to both jobs.
If the combined income from both jobs makes you a higher tax payer, but both jobs are being charged tax at the basic rate.
This could result in a nasty surprise, so it’s important get a second income tax check and complete the HMRC’s new starter checklist to help them allocate the correct tax code. It’s also worth double checking your tax code and your income tax for the current year to ensure everything is correct. Don’t leave it up to HMRC and hope for the best. If you have two jobs, you’ll have two tax codes. There is no specific second income tax rate, rather an overall income tax rate.
When you take a second job, the total amount you’ll earn throughout the year is combined when determining how much tax you’re liable to pay.
This is the same situation if you receive tax credits or benefits. By working a second job, if you take yourself over the particular thresholds for the credits or benefits you receive, it may render your second job not as lucrative as you had anticipated.
This also applies to a spouse taking a second job as for things like working tax credits, and child tax credits, it’s often determined by the household income.
Say for example, you earn £10,000 in a part time, job, while your partner earns £25,000, and you have three children. Currently, you will be entitled to child tax credits of £1,140.
If you decide to get another part time job which pays £5,000, you will be exempt from receiving the child tax credit, plus you’ll take yourself over the income tax threshold so will have to pay tax on that second job too. Meaning, you will pay tax of £698, and lose your tax credits of £1,140.
Suddenly, the part time job paying £5,000 is only worth £3,168, and that is without factoring in any other considerations such as any other credits you’ll be ineligible for.
With the rise in people taking a second job, there has also been a rise in tax evasion. Lots of people have entered the gig economy, as self employed operators and then fail to inform HMRC and file tax returns.
This was such an issue for HMRC that they started the Second Incomes Campaign, which gave an opportunity to people to tell HMRC about any previously undeclared second incomes and receive reduced penalties for their failure to do so before.
However, there was a warning attached to this campaign. HRMC wanted to give people a chance to pay second income tax, because if they’re caught after the cut off period, they will be dealt with in the strictest ways possible.
That is why, right from the very start of earning a second income, you must declare it to the taxman, otherwise you’re risking everything if you get caught. Mistakes won’t be tolerated, so it’s always worth making a call and getting a second income tax check if you’re unsure, or even using a second income tax calculator.
The powers which HMRC have to find tax dodgers are stronger than you may expect. Lots of people may assume that because they’re operating on the internet that HMRC won’t find out. That’s completely false.
Investigators not have extensive access to sites like eBay, Booking.com & Etsy. They can also access receipts and account records on sites such as PayPal and Worldpay.
So what happens if you earn your second income via matched betting? What is your tax situation then?
You’ll be pleased to hear, that as things stand, matched betting is a tax-free pursuit, which is why it is one of the favoured second income tax-free methods for many people around the world.
Even if this is your primary way of earning money, you do not have to pay tax, as betting activities – even if you’re profiting – are not classed as a trade.
It becomes a trade when you’re making profits, with the odds stacked in your favour, from the general public. Which is why bookmakers must pay tax, and ordinary citizens not.
However, if you make money matched betting each month as either a primary, or secondary income, it is always prudent to keep up to date with the situation. Online matched betting forums (such as the OddsMonkey Community) will help you with this.