Understanding Side Hustles in the UK
If you’ve ever sold a few bits on eBay, walked someone’s dog, or done a bit of freelance work after your 9-to-5, congratulations – you’re already dabbling in the world of side hustles! In the UK, a side hustle simply means any way you earn extra cash outside your main job. It’s become super popular in recent years, especially with more people looking for ways to top up their income or turn hobbies into profit.
So, what actually counts as a side hustle? It could be anything from delivering takeaways on your bike with Deliveroo, tutoring students online, running an Etsy shop, or even renting out a spare room on Airbnb. The list is endless and growing all the time. Some people do it just for a bit of pocket money while others are building up full-blown businesses alongside their regular jobs.
Why does tax matter for side hustles? Here’s where things can get a tad confusing. Even if you’re only making a small amount, HMRC still wants to know about it. Many first-timers assume that side gigs under the radar won’t matter, but technically, any extra earnings (no matter how small) might need to be declared. There are allowances and rules (don’t worry – we’ll break these down later), but understanding that tax applies is the crucial first step to keeping everything above board and stress-free.
2. Do You Need to Pay Tax on Your Side Hustle?
If you’re dipping your toes into a side hustle in the UK, it’s natural to wonder when exactly you need to tell HMRC about your extra income. The rules can seem a bit daunting at first, but don’t worry—once you break them down, they’re actually pretty straightforward.
When Do You Need to Declare Your Extra Income?
Generally speaking, any money you earn outside of your main job—whether that’s from selling crafts on Etsy, doing freelance work, tutoring, or even dog walking—counts as taxable income. However, not every penny needs to be reported or taxed.
The Trading Allowance
The UK offers a helpful tax-free allowance called the trading allowance. Here’s how it works:
| Income from Side Hustle | Do You Need to Tell HMRC? | Do You Need to Pay Tax? |
|---|---|---|
| £1,000 or less per tax year | No* | No |
| Over £1,000 per tax year | Yes | Maybe (depending on profit and other income) |
*If you’re already self-employed or claim expenses for your side hustle, you may still need to declare this income even if it’s under £1,000.
HMRC Thresholds and Self-Assessment
If your gross income from all side hustles combined goes above £1,000 in a tax year (which runs from 6 April to 5 April), you must register with HMRC and complete a Self Assessment tax return. This doesn’t always mean you’ll pay lots of tax—the amount you owe depends on your total earnings and any allowable expenses.
Key Points to Remember:
- The £1,000 trading allowance applies to all casual or self-employed income combined—not per gig.
- If you have multiple side hustles adding up to over £1,000, you must declare them all.
- You can still use the trading allowance even if you have a full-time job elsewhere.
- If your side hustle is just a hobby with occasional sales (like flogging old clothes on eBay), and it doesn’t make more than £1,000 a year, there’s usually no need to worry about HMRC.
So in short: keep an eye on what you earn. If you go over that magic £1,000 mark—or if you’re claiming expenses—it’s time to let HMRC know. Don’t panic; it’s all part of the journey!
3. Registering as Self-Employed
If you’re starting your first side hustle in the UK, one of the first things you’ll need to do is register as self-employed with HMRC (that’s His Majesty’s Revenue and Customs). It might sound a bit daunting, but don’t worry—I’ll walk you through it step by step!
What Counts as Self-Employed?
You’re considered self-employed if you run your own business and take responsibility for its success or failure. This could be anything from selling handmade crafts on Etsy to offering freelance graphic design services. Basically, if you earn money outside of PAYE employment (where tax is already taken off your wages), it’s likely you’ll need to tell HMRC about it.
Step-by-Step: Registering with HMRC
Step 1: Get Your Information Ready
You’ll need a few basics to hand—your National Insurance number, personal details (like your address and date of birth), and info about your side gig. Don’t stress; this is all pretty standard stuff.
Step 2: Sign Up Online
Head over to the HMRC website and set up a Government Gateway account if you haven’t already. Then, follow the prompts to register as self-employed for Self Assessment tax returns. You’ll get a Unique Taxpayer Reference (UTR) number in the post within about 10 days—keep this safe!
Step 3: Confirm Your Business Details
HMRC will ask for some details about what sort of business you’re running and when you started trading. Be honest—it doesn’t matter if your ‘business’ is just a part-time side project.
Step 4: Keep Records From Day One
This is super important! Once you’re registered, keep track of every penny you earn and spend related to your side hustle. Save invoices, receipts, and bank statements—you’ll thank yourself come tax return season.
What Does Being Self-Employed Mean For Your Taxes?
Once registered, you’ll need to complete a Self Assessment tax return each year. This means telling HMRC how much money you made, what expenses you had, and working out how much tax (and potentially National Insurance) you owe. Don’t panic—there are loads of resources out there to help first-timers, and the process gets easier every year.
Registering as self-employed may seem like a big step, but it’s actually pretty straightforward once you break it down. Plus, getting everything official means you can focus on growing your side hustle without worrying about nasty surprises from HMRC later on!
4. Keeping Track: Income, Expenses, and Records
Right, so you’ve set up your side hustle and hopefully started making a bit of cash – brilliant! But before you spend it all on a cheeky Nando’s or that weekend getaway, let’s talk about the less glamorous part: keeping your financial records in order. Trust me, this is way less painful than you think, and it’ll save you loads of headaches when HMRC comes calling.
Why Record-Keeping Matters
If you’re earning extra income in the UK, HMRC expects you to keep clear records of what you earn and what you spend for your side hustle. Good records help make filling out your Self Assessment tax return much easier. Plus, if you claim expenses (which you absolutely should if they’re allowed!), having solid proof is a lifesaver if HMRC ever decides to check your figures.
What Records Should You Keep?
| Type of Record | Examples |
|---|---|
| Income | Invoices issued, sales receipts, PayPal or bank statements showing payments received |
| Expenses | Receipts for purchases, bills for services (e.g. web hosting), mileage logs if you use your car for business |
| Other Documents | Contracts with clients, correspondence about work done, copies of any relevant insurance policies |
Top Tips for Managing Receipts & Records
- Go digital: Use apps or scan receipts with your phone – no more boxes stuffed with fading paper receipts!
- Date everything: Always write the date on receipts that don’t have one printed.
- Keep it separate: Consider a separate bank account just for your side hustle so it’s easy to track income and spending.
- Regular review: Set aside time each month to update your records. Trust me, this beats a last-minute panic in January.
Allowable Expenses: What Can You Claim in the UK?
The UK has specific rules about what counts as an allowable expense for self-employed folks. The golden rule? It must be “wholly and exclusively” for your business – not personal use.
| Expense Type | Examples You Can Claim |
|---|---|
| Home office costs | A portion of rent, electricity, internet (if you work from home) |
| Travel expenses | Mileage allowance (45p/mile up to 10,000 miles), train fares to meetings (not commuting) |
| Materials & supplies | Stock for resale, printing costs, packaging materials |
| Marketing costs | Website hosting, online advertising (Google/Facebook ads) |
| Professional fees | Accountant fees, insurance premiums related to business activities |
A Quick Note on Personal vs Business Use
If something is used partly for business and partly for personal stuff (like your mobile phone), only claim the percentage related to business use. For example, if half your calls are business-related, claim 50% of your bill.
The Bottom Line: Stay Organised!
A little effort spent keeping things tidy means less stress at tax time and more confidence that you’re claiming what’s rightfully yours. Plus, HMRC requires you to keep records for at least 5 years after the 31st January submission deadline of the relevant tax year – so don’t bin those receipts too soon!
5. Filing Your Self Assessment Tax Return
If you’re running a side hustle in the UK, chances are you’ll need to file a Self Assessment tax return with HMRC. It sounds a bit daunting at first, but honestly, it’s pretty straightforward once you know the ropes. Here’s a simple walkthrough of how it all works—plus some tips to help you dodge those common mistakes that trip up so many newbies.
Getting Started: Registering for Self Assessment
First things first: if you’ve never filed a Self Assessment before, you’ll need to register with HMRC. You can do this online, and you’ll get a Unique Taxpayer Reference (UTR) number sent to you in the post. Make sure to give yourself plenty of time—HMRC isn’t known for lightning-fast snail mail!
What You’ll Need to File
- Your UTR number
- Your National Insurance number
- Details of all income from your side hustle(s)
- Records of expenses related to your side business
- P60 or P45 if you’re also employed
It really pays to keep good records throughout the year. Scrambling for receipts or forgetting about PayPal payments is nobody’s idea of fun when January rolls around.
Key Deadlines to Remember
- 5th October: Deadline to register for Self Assessment if you’re new.
- 31st October: Deadline for filing paper tax returns (not very common these days).
- 31st January: The big one! Online tax return deadline and payment due date.
Avoiding Common Mistakes
- Missing deadlines: This can land you with an automatic £100 fine—even if you don’t owe any tax! Set reminders on your phone or stick a note on your fridge.
- Forgetting side income: Even small bits of freelance work count. HMRC has clever ways of finding out, so best be upfront!
- Poor record keeping: Keep everything organised—apps like QuickBooks or even a trusty spreadsheet will do the trick.
The Online Process: Step-by-Step
- Log in to your HMRC account.
- Select ‘Start your tax return’ and follow the prompts.
- Add details about your self-employed income and any other earnings.
- Claim relevant expenses—be honest, but don’t miss out on what you’re entitled to!
- Check everything carefully before submitting—you can always save and come back later.
Treat it as ticking off a checklist rather than a scary exam, and remember: thousands of people do this every year without drama. If you’re ever stuck, HMRC’s online help is surprisingly friendly, or you can chat with an accountant (it doesn’t have to cost the earth). Filing your tax return is just part of life as a UK side hustler—and with these basics sorted, you’ll breeze through it in no time!
6. PAYE, National Insurance, and Side Hustle Impacts
If you already have a regular job in the UK, chances are you’re paid through PAYE (Pay As You Earn). This means your employer automatically sorts out your Income Tax and National Insurance (NI) contributions before your wages hit your bank account. It’s pretty straightforward, but once you add a side hustle into the mix, things get a bit more interesting!
How Your Main Job Affects Your Side Hustle Taxes
Your main job uses up all or most of your personal allowance (the amount you can earn tax-free each year). So, any extra income from a side hustle will usually be taxed at 20% (or higher if you’re already a higher-rate taxpayer). HMRC will look at your total income—from both your job and your side gig—when working out how much tax you owe overall.
PAYE Doesn’t Cover Your Side Hustle Automatically
PAYE only covers income from your main employment. When you earn money on the side (like freelancing, selling crafts online, or tutoring), it’s up to you to declare this extra cash via Self Assessment. Make sure to keep track of what you earn and set aside some money for the tax bill—HMRC doesn’t take it out for you!
National Insurance: Two Jobs, Two Sets of Rules
With NI, things are slightly different. You’ll already pay Class 1 NI through your main job. For your side hustle, if your profits go over £12,570 (for the 2024/25 tax year), you’ll also need to pay Class 2 and possibly Class 4 NI contributions as a self-employed person. The good news? If you don’t make much from your side gig, you might not owe anything extra.
Things to Watch Out For
- Coding Notice Changes: If HMRC knows about your side income, they might adjust your tax code so more tax is taken from your main job’s salary. Don’t panic—this is just to help cover what you owe.
- Don’t Forget Student Loan Repayments: If you have a student loan, extra earnings from your side hustle could bump up how much gets repaid through PAYE or Self Assessment.
- Keep Good Records: Track all your earnings and expenses for both jobs—it makes filling out your Self Assessment much less stressful!
In short, having a side hustle alongside a PAYE job means thinking about taxes and NI in a new way. Stay organised, check how everything links together, and there shouldn’t be any nasty surprises come tax time.
7. Handy Tax Tips and Where to Get Help
If you’re running a side hustle in the UK, getting your taxes right can feel a bit daunting at first. But don’t worry—there are some simple hacks and easy wins to help you save on tax, steer clear of common mistakes, and know where to get more advice if you need it.
Simple Hacks for Saving on Tax
- Keep track of every expense: From postage costs to that new laptop bag, log anything you buy for your side gig. These legitimate business expenses could be deducted from your income and lower your overall tax bill.
- Use the trading allowance: If your side hustle makes less than £1,000 in a tax year, you don’t need to register with HMRC or pay tax on it (unless you have other income streams that complicate things).
- Claim for use of home: If you work from home—even part-time—you might be able to claim a flat-rate expense or a portion of your household bills. Just make sure you keep all those energy bills handy!
Pitfalls to Avoid
- Missing deadlines: Mark 31 January (Self Assessment deadline) and 31 July (for payments on account) in your calendar. Fines for missing these dates add up quickly!
- Forgetting about National Insurance: Once your profits pass £1,000, you may need to pay Class 2 or Class 4 National Insurance contributions. It’s not just about Income Tax!
- Poor record keeping: Shoving receipts in a drawer is tempting, but digital records make life much easier when it comes time to fill out your Self Assessment.
Where to Find More Advice
- HMRC website: It’s surprisingly user-friendly these days. Their guidance pages walk through almost every scenario for UK side hustlers.
- Free helplines and webinars: HMRC runs regular online sessions and has helplines if you’re stuck (though expect a wait during busy periods!).
- Local accountants: If things start getting complicated—think multiple incomes or VAT—it might be worth investing in professional advice. Many offer free initial consultations.
A Little Peace of Mind Goes a Long Way
Tackling tax doesn’t need to be scary. With a few good habits and by knowing where to find help, you can focus more on growing your side hustle—and less on worrying about HMRC coming knocking.
