Side Hustle Tax in the UK: A Complete Guide
With 2 in 5 Brits now having a side hustle, the prospect of paying more tax looms large. HMRC are keen to ensure that everyone pays the tax that they owe, making side hustle tax in the UK a hot topic. What are the tax obligations?
As with all financial stuff, if you are unsure, it is best to seek qualified independent advice. And when it comes to tax, a tax accountant is the best person to turn to. Always check your tax and financial obligations. This is a guide only.
A side hustle is nothing new but what has changed, is the style of earning extra cash on the side. At one time, to bolster income, people would often get a second job, such as picking up a few shifts in a local bar or restaurant. Today, the internet has opened a plethora of new and exciting opportunities.
Selling online is super easy to do, from selling second-hand clothes on sites such as Vinted to opening your own store on Shopify, the avenues for making extra income - and possibly a full time career out of it - has never been greater.
To quote Benjamin Franklin, nothing is certain except death and taxes. And that means, making sure you know your side hustle tax obligations.
Do you have to pay tax on a side hustle?
“Yes, if you are earning more than £1,000 gross income from your side hustle each tax year.”
This is known as your Trading Allowance.
If your side hustle gross income is more than £1,000, you will need to register as self-employed with HMRC and complete a self-assessment tax return each year.
HMRC are very clear about deadlines and what happens when you miss them. Pleading ignorance is not a defence in their eyes and so, if you are enjoying a side hustle alongside your employed income, you really do need to get to grips with the rules.
These rules do change so it is advisable that you check for the latest rules, deadlines and regulations on the HMRC website.
How do I know if my side hustle income is more than £1,000?
The answer is simple: you need to be organised and keep clear records of income and expenditure.
Gross income means money you have earned from your side hustle before tax. For some people, this will be more than enough to cover the small number of sales that they make over the tax year.
But for others, it won’t be and that means, you will need to pay tax on any income over and above this Trading Allowance.
You need to keep a clear record of any sales that you do make, whether that is for a product or a service, and expenditure that can be offset against the side hustle.
For example, if you sell homemade candles on Etsy, you will buy equipment and materials, as well as have postage and possibly advertising costs too.
You can do this ‘on paper’ by keeping an account book. But in this digital age, there is a plethora of accounting software to choose from.
Both Xero and Quickbooks have packages designed for people who are self-employed. Keeping track of invoices, payments and expenses is so easy when done this way. You don’t need a PC or laptop - you can access these platforms via your phone. In some cases, they can also be linked to your selling platform, making it even easier to keep track of your side hustle finances.
How do I calculate and pay side hustle tax?
If your side hustle is more than £1,000 per tax year, you need to register as self-employed with HMRC and you must do this by 5 October after the end of the tax year.
Tax years run from 6 April to the following 5 April and self-employed tax runs in arrears. For example, if you made more than £1,000 in 2024, you will need to submit a self assessment return for 2024/25.
If this is the case, you must register by 5 October 2025.
You can make a paper return - where you complete the calculation on the paper from HMRC - but this has to be submitted to them by 31 October each year.
Submitting online is much easier and the deadline for this is 31 January each year.
But, you need to be aware that if you leave it until this date, you have until midnight to not only submit the return but also pay any tax that is owing.
You can make payments through the year - take a look here to see the deadlines in full.
How to register as self-employed - a step by step guide
Bearing in mind the deadlines we’ve talked about, you need to:
Decide your business structure - there are pros to being either a sole trader or limited company but what these are depend on your current financial situation, your plans for the future. Both come with slightly different tax and financial obligations. Research both set ups to see which one is best for you and your side hustle.
Tell HMRC you are self-employed - do this online at the gov.uk website. Follow the instructions carefully, making note of reference numbers and so on.
Register for self-assessment - once you’ve told HMRC you are self-employed, you need to tell them you want to register for self-assessment tax. This return is used to calculate your tax liability. You can submit this yourself every year OR you can ask a bookkeeper to help. Some accountants will also advise you on self-assessment tax, acting on your behalf. You’ll need to give them authority to act as your tax agent.
Unique Tax Reference (UTR) - as part of this sign up process, HMRC will send you your own Unique Tax Reference number. This is 12-digits long and you need to keep this. This is your identifier for when you log a return, make any payments. You’ll also need this to sign into your personal tax account. Your UTR will arrive back in the post.
Set up your Government Gateway account - once you have your UTR, you can set up your online Government Gateway account. Using this, you’ll submit your self-assessment return each tax year, see any tax that you owe, make payments and so on.
Enjoy your side hustle!
Earning a little extra can make a real difference to quality of life and for many, it is the start of a new and exciting journey. For others, it’s an opportunity to have some cash, make investments or be able to enjoy life a little more - and knowing that your side hustle tax is correct contributes to this enjoyment!
