Your main income
If your IR56 income is your main income you calculate PAYE and other deductions using your relevant tax code. You need to check each month if you’re entitled to the independent earners tax credit (IETC).
Your secondary income
If your IR56 income is your secondary income, you have three options to calculate PAYE and other deductions.
You can use a secondary tax code.
Tailored tax code option
When some people use a standard tax code they pay the wrong amount of tax and then get a large tax bill or tax refund at the end of the year. You can avoid this by applying for a tailored tax code.
Instead of using a secondary tax code you can use the self-calculating method. Your tax code will be STC. This lets you work out how much tax you should pay on your IR56 income.
This option looks at the income and PAYE deducted from your main source of income. It helps you pay a more accurate amount of tax.
You can read more about calculating PAYE in the IR56 taxpayer’s handbook – IR356.