Side income and the second tax
The first thousand is usually free. After that, the second job comes with a second set of rules...
A side income is taxed like any other income, which sounds obvious and catches people out every year. The rate is your marginal rate, not a fresh set of bands, so the first pound of side income is taxed at the rate of the last pound of your salary.
The allowance
Most systems let you earn a small amount, around a thousand a year, from trading or property before anything is due or declared. Below it, do nothing. Above it, you file.
What filing means
- A tax return, once a year, with a deadline that is later than you think and a penalty that is larger.
- Keeping receipts. Expenses come off the income before it is taxed, and the receipts are what prove them.
- Paying in arrears, sometimes with a payment on account toward the following year. The first year's bill is often close to double what you expected for that reason.
The rule of thirds
Put a third of every side-income payment into a separate account the day it arrives. For most people at a basic rate that covers the tax with a little over. At a higher rate, make it forty percent.
Is it worth it?
Usually, but do the sum at your marginal rate before you decide. An extra 5,000 a year at a forty percent marginal rate is 3,000 in the bank, for however many evenings it took.
Anita Desai
Twelve years in pensions administration, now writing Atlas full time. Believes every money question has a worked example, and that most advice skips it.
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