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A bit on the side? 4 things to remind clients about second jobs

1st Jan 2022
Brought to you by
tax cloud

Tax Cloud is an R&D Tax Credits claim portal.

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Even before the pandemic, for many households in the UK money was hardly free-flowing. Then as the economic squeeze from COVID lockdowns hit, more and more people looked to make extra income on the side. Some went for a second job with casual hours, while others have dabbled in the world of freelancing.

‍In fact, figures from The Office of National Statistics (ONS) show more than 1.1 million people in the UK currently have a second job, working 10 hours a week on average. And with companies looking to cut their own employment costs in favour of something more informal, it’s a set up that can work well.

If you have a client who’s currently employed but is considering a sideline job, there are several things well worth pointing out to them.

Contractual obligations

The first thing an employee should do is check their employment contract. Some contracts have a clause that specifically forbids them from taking on paid work elsewhere, which wipes out the whole second job thing completely. This is particularly the case where there’s a potential conflict of interest, for example work being undertaken for a competitor.

Some contracts also specifically stipulate employees must not bring the company into disrepute. In other words, if the employee is a respectable official by day but a lap dancer by night, this again could be a no-go.

However, even if your client works for a fairly relaxed employer where no such clauses are present, they should still be honest. If they plan to take on any type of paid work outside their normal hours, written permission should be obtained ASAP.

Moonlighting on long-term sick leave

Try hard to talk some sense into anyone you come across who’s thinking about doing this. It’s a really bad idea.

Sometimes employees go on genuine long term sick leave - and of course, that’s acceptable. But supplementing their income with a second job whilst they’re on their sick leave is not.

Whilst the dishonesty itself may not necessarily mean the employee is automatically either disciplined or sacked, they may still come a cropper. That’s because the employer could say “well if you’re ill enough not to be working for us, how come you’re well enough to work for them?” - or words to that effect.

Not doing their main job to the best of their abilities

Most employees would say “When outside of working hours I can do what I like with my time”. And yes, this is generally true. Well, mostly.

While an employee isn’t obliged to tell their main employer that actually they were on a nightclub door duty shift at 2am last Tuesday morning, at some point they may well find out. If the employee is then regularly too tired, too sick or is logging off early for example, then their main job could be in jeopardy. No-one can burn the candle at both ends for long.

Tax implications

"In this world, nothing is certain except death and taxes." - Benjamin Franklin

Do they know about the (boogey) tax man? If their second job is PAYE they’ll obviously be taxed at source. Remind them that this could potentially push them over into the next tax band if they’re already perilously close to a threshold.

Those on PAYE will also need to give a P46 to their new (second job) employer, not a P45 as the first job is still ongoing.

If they’re self-employed (usually freelancing) then it’s important they understand the ins and outs of self-assessment, as well as putting cash aside each month to pay their tax bill. It’s real bread and butter stuff for you, but daunting and unknown for them.

Tax implication #1: Personal tax allowance

We’ve touched on this above. Again it’s all pretty obvious to you as an experienced accountant, but may not be to your second-jobbing client.

Explain to them that their annual tax-free personal allowance will normally only be used against their main job, with tax taken off accordingly. Each job will have its own tax code, with the second job usually on basic rate.

Your client needs to fully understand that although you’re there to support them as their trusted accountant, their tax affairs are ultimately their responsibility. They therefore need to check their tax code is correct for each job, and discuss any problems with you urgently.

Tax implication #2: Self-assessment

Again, if they’re freelancing (or drawing any income that’s not PAYE), how much do they actually know about self-assessment?

Go through the basics in detail: Important self-assessment deadlines, payments on account and claimable expenses are particular ones. Apportioning costs such as mortgage/rent, gas, water, electricity and broadband are likely to leave them scratching their heads too - so get in there early and discuss.

Tax implication #3: Tax credits

Child Tax Credit and Working Tax Credit may be being claimed by your client with or without Universal Credit.

If your client is currently getting either of these types of Tax Credits they need to think really carefully about whether a second job actually makes financial sense. Tax credits will be calculated on their estimated income at the beginning of the year, so any extra income will reduce their future entitlement.

Side note: If they are claiming Universal Credit, and aren’t getting the work allowance, their UC payment will decrease by 63p for every £1 they earn. have put together a helpful article on exactly this subject. Take a look here.

This article was brought to you by Tax Cloud

Tax Cloud is the UK’s premier online R&D tax claim portal. Simply follow the easy, fully-guided steps to create your clients’ R&D Tax Credits claim on their behalf, getting them up to 33% of their eligible R&D costs back. Even loss-making companies can benefit too.

Developed and supported by industry-leading R&D tax specialists Myriad Associates, you can rest easy in the knowledge that not only will their claim be accepted by HMRC, it’ll be maximised too.

Why not chat to our team about partnering with us today on 020 7360 4437 or send us a message.