If you work full time, your employer makes all the necessary tax and National Insurance deductions for you, hopefully ensuring you pay the right amout of tax.
However, if you earn money from any other source, as well as your main employer, this is classed by HM Revenue & Customs (HMRC) as a "additional income" and you will need to calculate, organise, and declare any extra income you receive.
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What constitutes additional income?
Any taxpayer who has alternative revenue streams outside of their main employment is regarded as having both "employed" and "additional" income. Tax must be paid on any additional income; to calculate this, you must register with HMRC for a Unique Tax Reference and complete a self-assessment tax return.
If you work for somebody other than your employer, you?ll almost certainly be considered a "second income" earner, and will need to inform HMRC as soon as possible.
Different types of second income can include:
- Freelance/contract work. Any earnings you make outside of full-time employment through freelancing or contracting must be declared.
- State pension. as well as withdrawals from your pension.
- Interest on savings. Tax on savings interest will also differ if you have other forms of income, although this will depend on how much you?re actually earning elsewhere.
- Property rental income. If you own a property and decide to rent it out to another party, you will need to pay tax on these earnings if the income is in excess of £1,000.
- Selling property outright may make you liable to pay Capital Gains Tax.
- Investments. Dividend income in excess of £10,000.
- Sale of assets/items. Selling items on a regular basis to earn steady money is recognised by HMRC as being self-employed - be it over the internet or at a local market. Any money you receive from these transactions must be declared if your income before expenses is in excess of £1,000.
How can I declare a second income?
Extra income should be declared on your self-assessment tax return. You can find more information about how to declare a second income on the GOV.UK website.
Content reviewed by Mike Parkes, technical director, GoSimple Software