You’ve started side-hustling, and have no clue how or what to do regarding your side hustle tax UK. Don’t worry, you’re not alone. In this post, I will try to explain in basic terms, how side hustles and tax in the UK works and what we need to declare from our side hustles. Please note that while I am not a tax expert, the information in this post is based on my personal experience and is accurate as of Dec 2024.
Tax Basics
How much money can you earn from a hobby before paying tax UK? In the UK any income above £12,570, will be taxed at a rate of 20%, if you’re fortunate enough to earn over £50,271, you will be taxed at a rate of 40%. If you’re basically too rich to be on this page and earn over £150,000, you will be taxed at a rate of 45%.
That being said, if you earn over £1,000 from side hustles per year, you will need to declare this to HMRC. Anything up to £1,000 is within the Trading Income Allowance, a policy created in 2017. If you earn under £80 a month from side-hustles you should be safe. However, you should always keep track of any extra earned income.
The £1,000 is BEFORE expenses are taken off (such as cost of materials, travel, etc..)
What type of Side Hustles do I need to declare Tax?
- Surveys
- Dog sitting
- Selling crafts
- Re-selling profits
- Most small business income
How To Make Money Tax-Free UK:
- Matched Betting – this income counts as gambling winnings
- Renting a Room – up to £7,500 tax-free with the Government’s Rent A Room scheme
- Selling of personal items
How do I declare my Side Hustle income to HMRC?
You will need to complete a Self-Assessment (otherwise known as a tax return) with HMRC. This can be done online, however, you must first register for a UTR (Unique Tax Reference). The process takes up to ten working days the first time you register. You will receive everything you need in the post. This self-assessment will also include any PAYE income but will take into account the tax you have already paid on this. You can also find this information on your P60 or Personal Tax Account.
Tax years run from April 6 – April 5 and you will be able to submit from this date. I would always advise submitting your self-assessment as early as possible. This means, if necessary you can save your tax bill until you have to pay in January (before 31st!). When you first start trading, you have until October 5th of the following tax year to submit your return.
Once you register for this service you will need to submit a self-assessment every year until you cease trading, even if your extra income falls below £1,000.
Payment on Account
The first time you submit your assessment, you will owe the amount for that tax year PLUS half of the ‘estimated’ tax for next year by January 31st – this is called ‘payment on account’. This is how HMRC ensures you will continue to pay tax and submit assessments, it’s their insurance. You will then owe the other half by July 31st. If you submit the next year’s assessment before July 31st, the payment on account may be adjusted, and you may even get a repayment (when HMRC owes YOU money!) This is why it’s important to keep filing when you earn under the £1,000 threshold. If your tax bill is less than £1,000 OR you have already paid more than 80% of the tax you owe (from overpayments from past years of from PAYE work), you will not have to make a payment on account.
Expenses
It is likely that you will be able to claim some expenses. These costs are taken into account when working out your final tax bill.
I would advise you to keep all physical and online receipts for things you pay for regarding your side hustle. Not only does this help you keep track but can be provided to HMRC as evidence if ever required.
Some common expenses:
- Postage
- Travel (slightly complicated, check the government website)
- Online courses – to better or build your business
- Online subscriptions – web hosting, software, etc..
- Equipment
- Working From Home expenses
If you are unsure of anything please do not hesitate to message me and I’ll do my best to answer from my experience, or contact HMRC. They are very helpful!
Alternatively, use HMRC’s income tax calculator for an estimate of how much you may need to save for your tax bill.
Why not work with a money coach?
Collaborating with a money coach can be a game-changing strategy when it comes to building and optimizing a side hustle. Money coaches possess a wealth of knowledge in financial planning, budgeting, and entrepreneurship, making them valuable mentors in the realm of side hustle development. By consulting with a money coach, individuals can gain insights into the financial aspects of launching and sustaining a side hustle, including budgeting for start-up costs, setting realistic financial goals, and managing income streams. A money coach can also provide guidance on tax implications, helping you navigate the financial intricacies associated with self-employment. Beyond the numbers, they can offer strategic advice on marketing, pricing, and scaling your side hustle for long-term success. The personalized support and accountability provided by a money coach can be particularly beneficial during the early stages of a side hustle, helping you make informed financial decisions and optimize your efforts towards achieving both financial stability and entrepreneurial success. Get in touch today!
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