Additional Income!

What is a Side Hustler?

A "side hustler" is someone who earns additional income outside their main job or business, usually by turning a hobby or skill into a source of extra cash. Side hustles can be anything from selling art on Etsy, delivering food, freelance writing, teaching fitness classes, to running a local pet-sitting business.

Most side hustlers keep their main employment for financial security, and run their small business alongside.

With the growth of online platforms, flexible work, and social media, side hustling is increasingly popular across the UK.

Hobby or Business? HMRC’s View

One of the first questions to consider is: when does your hobby actually count as a business for tax purposes? His Majesty’s Revenue and Customs (HMRC), which is responsible for tax collection, uses several factors to distinguish a business from hobby income:

• Are you aiming to make steady profits, not just cover costs or sell the odd item?
• Are your activities regular and organised, or just occasional?
• Do you advertise, use sales platforms, or operate your own website?
• Are you keeping records or planning for growth?

If you earn money from an activity regularly, promote your sales, intend to make a profit, and operate in a business-like way, even on a small scale, HMRC is likely to consider you as "trading". This means you must follow the business tax rules, no matter how modest your side enterprise seems.

The £1,000 Trading Allowance: Key Facts

The UK offers a £1,000 trading allowance - an annual amount you can earn in gross income from self-employment, casual sales, or providing services before having to register or report to HMRC.

• This allowance applies to gross income - the full amount you earn before deducting any expenses.
• If your total gross side hustle income for the year is £1,000 or less, you don’t have to register as self-employed or complete a tax return for this income.
• If your gross side hustle income exceeds £1,000 even by £1, you must register with HMRC and submit a Self Assessment tax return.
• How you deduct expenses: If your income is over £1,000, you must choose either to deduct the £1,000 trading allowance from your income, or to deduct your actual allowable business expenses - you cannot do both.

Example:

Suppose you earn £1,500 from your side business, with £600 in business expenses:

• If you claim the trading allowance: £1,500 - £1,000 = £500 taxable profit.
• If you claim your actual expenses: £1,500 - £600 = £900 taxable profit.

Choose whichever gives you the lower taxable profit; you cannot claim both the trading allowance and your expenses for the same income.

Registering as Self-Employed

If your gross income from side activity is over £1,000 in a tax year, you have to register as self-employed with HMRC. You must do this by 5 October after the end of the tax year in which you go over the threshold.

Steps to Register:

• Create a Government Gateway account if you don’t have one.
• Register as a sole trader (self-employed) on the HMRC website.

Once registered, you'll be required to keep records of your business income and expenses and submit a tax return every year.

Self Assessment Tax Returns and Record Keeping

The Self Assessment system is how HMRC collects tax from sole traders, side hustlers, and people with income outside PAYE. The UK tax year runs from 6 April to 5 April.

• Official government website pay tax page (https://www.gov.uk/pay-self-assessment-tax-bill) - this will vary slightly for other forms of Tax

Deadlines:

• 31 October: Deadline for paper tax returns.
• 31 January: Deadline for online tax returns.

Missed deadlines mean penalties and interest on late tax.

How long do you keep records?

• For Self Assessment, business records (invoices, expenses, bank statements, logs) must be kept for at least five years after 31 January following the end of the relevant tax year.
• If you register for VAT, records must be kept for at least six years.

What Tax Do Side Hustlers Pay?

Income Tax

You'll pay income tax on your profits from side hustling. Profit is your total income minus allowable expenses (or trading allowance).

Tax bands for 2024/25 (England, Wales, Northern Ireland):

• Personal Allowance (first £12,570): 0%
• Basic Rate (£12,571–£50,270): 20%
• Higher Rate (£50,271–£125,140): 40%
• Additional Rate (over £125,140): 45%

Rates and bands can change annually—always check the latest HMRC figures.

National Insurance Contributions (NICs)

From April 2024, important changes apply to self-employed National Insurance:

- Class 2 NICs

• If your profits are above the Small Profits Threshold (£6,725) but below the Lower Profits Limit (£12,570), you won't pay Class 2 NICs, but will be treated as if you have paid them, ensuring you build entitlement to State Pension and benefits.
• If your profits are above the Lower Profits Limit, you automatically meet the benefit criteria, and do not have to pay Class 2 NICs.
• If your profits are below the Small Profits Threshold, you may choose to pay Class 2 NICs voluntarily to protect your National Insurance record for state benefits.

- Class 4 NICs

• You pay Class 4 NICs on profits:
• 9% on profits between £12,570 and £50,270
• 2% on profits above £50,270
• See HMRC guidance on National Insurance for the self-employed.

These rules change over time, so check the current rates each year.

VAT Registration - The Rules from April 2024

From 1 April 2024, you must register for VAT if your taxable turnover from your side business exceeds £90,000 over any rolling 12-month period (not just within a tax year).

• Voluntary VAT registration is possible under the threshold but brings extra admin.
• See the latest at VAT Registration Thresholds.

Allowable Expenses: What You Can and Can't Claim

Deducting legitimate business expenses reduces your tax bill. Typical allowable expenses include:

• Cost of goods or raw materials
• Website, hosting, or advertising costs
• Platform fees (e.g. eBay, Etsy, Amazon)
• Postage and packaging
• Office supplies or software
• Travel (business mileage or fares; keep detailed records)

- Home working costs

• Only claim the business-use proportion of home utilities, rent, or phone/internet bills.
• Use HMRC's simplified expenses flat rate based on hours worked at home each month, or apportion actual bills fairly (such as by number of rooms or usage). See guidance on simplified expenses.
• Professional subscriptions, insurance, and relevant training (only if related to your side business).

Remember: only the business proportion of mixed-use costs can be deducted. Keep all receipts and accurate records.

Insurance and Licences: Your Obligation

• Food businesses: If you sell food to the public (even online), you must register your business with your local council. Food handlers must be properly supervised/instructed/trained in hygiene; a formal certificate is not a legal requirement but local authorities may check compliance.
• Other licences: Some side hustles (childminding, events, live music, alcohol sales) need local authority licences.
• Insurance: Consider public liability, professional indemnity, or product liability insurance based on your specific risks.

Record Keeping: Best Practices

Maintain detailed and accurate records:

• Income and sales logs
• Receipts and invoices
• Bank statements
• Evidence for home working or business-use-of-home calculations
• Mileage logs and travel records

How long to keep records:

• Self Assessment: at least five years after the 31 January filing deadline.
• VAT-registered: at least six years.

Making Tax Digital (MTD): What's Ahead

Making Tax Digital is HMRC's plan to digitise tax reporting. The rollout is:

• April 2026:MTD is mandatory for those with gross income over £50,000.
• April 2027:Mandatory for those with gross income over £30,000.
• These are based on gross income (not profit) from self-employment or property.
• Deadlines can change, so always check HMRC's MTD updates.

PAYE Employees with a Side Hustle

If you are employed (tax paid by PAYE) and have side business income:

• Your employer continues to deduct tax from your wages.
• You must still declare your side hustle profits through Self Assessment.
• If you owe less than £3,000 in extra tax and are in employment or get a company pension, AND you submit your return online by 30 December, HMRC can collect extra tax automatically by adjusting your tax code.

Partnerships and Limited Companies: Beyond Sole Trader

If you expand, you may set up as a partnership or limited company.

• Ordinary partnerships: Must be registered for Self Assessment with HMRC. The partnership files a partnership tax return, and each partner submits their own individual return.
• LLPs: Register both with HMRC and Companies House, submit annual partnership and personal returns.
• Limited companies: Separate legal entities; registered with Companies House, file company accounts, and pay Corporation Tax. Seek professional advice before this step.

Grants, Loans, and Investment Schemes

If you expand, you may set up as a partnership or limited company.

• Start Up Loans: Some may be eligible for a government-backed Start Up Loan. You must be aged 18 or over, have a UK business, and meet other eligibility criteria. Visit Start Up Loans for full details.
• EIS and SEIS: The Enterprise Investment Scheme and Seed Enterprise Investment Scheme are only available to limited companies - not sole traders or partnerships.

Pitfalls to Avoid

• Not declaring side earnings: HMRC tracks online platforms and expects all qualifying income to be declared above the allowance.
• Claiming personal costs: Only deduct actual business expenditures or business-use elements.
• Inadequate record-keeping: Risk of penalties, incorrect claims, and lost tax relief.
• Missing deadlines or underestimating your tax bill: Set reminders and put aside 20-30% of profits for tax.