UK Side Hustle Tax: All You Need To Know

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Our concise guide covers everything you should be aware of regarding side hustles and tax in the UK.

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Whether you're aiming to transition to full-time self-employment or just looking to earn some extra cash in your spare time, there are numerous reasons to start a side hustle. However, before diving into the next big venture, it's crucial to consider the tax implications of your side hustle. UK side hustlers have specific tax obligations based on their earnings.

In this guide, we'll walk you through all the essential details about paying taxes on side hustle income in the UK. This way, you can manage your side hustle taxes effectively and focus on growing your business.

Distinguishing Between a Job and a Side Hustle

In simple terms, a side hustle is an activity you engage in alongside your primary job to earn additional income. Here are a few examples:

• You work as a dental nurse full-time and crochet clothing items to sell on Etsy during your off hours.

• You hold a part-time position as a PR executive and freelance as a writer for the pharmaceutical industry outside of your regular job.

• You work as a full-time electrician and run a pet-sitting service during your free time.

According to HMRC, the key distinction between a job and a side hustle is the amount you earn. Earnings below £1000 in one tax year are not considered taxable income. Therefore, there's no need to register as self-employed or declare this income to HMRC.

Do You Have to Pay Taxes on a Side Hustle?

Yes, if you earn more than £1000 from your side gig in a tax year. Unlike employees who usually pay taxes through PAYE, managing a side hustle involves a different process. To fulfill tax obligations on side hustles, you must register as self-employed with HMRC and submit a self-assessment tax return.

Income Threshold for Tax on Side Hustles

Everyone in the UK has a tax-free trading allowance of £1000 in additional income, separate from their regular employment. This means that if you are employed full-time and earn less than £1000 from your side hustle, you don't have any additional tax obligations.

Paying Tax on Your Side Hustle

If you're employed, taxes are automatically deducted by your employer. However, having a side hustle that earns over £1000 in a tax year requires you to complete a self-assessment tax return for this income source. Check our guide on how to fill out a self-assessment tax return for detailed instructions.

Side Hustle Tax Deductions

If you've been wondering how to pay taxes on a side hustle, rest assured that side gig taxes are managed through the self-assessment system. The amount of tax owed on your side hustle is calculated by HMRC using your self-assessment tax return.

Include details of your employment in your self-assessment tax return so HMRC can assess how much tax and national insurance you've already paid. It's important to note that side hustle income may push you into a higher tax bracket, as tax is based on both self-employment and employment income.

Registering Your Side Hustle in the UK

When registering your side hustle with HMRC, follow these steps:

1. Decide on your business structure, choosing between a sole trader or limited company. Research both setups to determine the best fit for your business.

2. Notify HMRC of your self-employment status through the gov.uk website.

3. After registering with HMRC, sign up for self-assessment. You'll receive a Unique Taxpayer Reference (UTR) by mail within 10 days of registration, which you'll use to submit your tax return.

4. Using your UTR number, create a government gateway account to submit your tax returns online.

Consequences of Not Paying Tax on Your Side Hustle

Failure to pay income tax on your side hustle may result in fines from HMRC. Late tax payments can accrue interest, increasing the amount owed over time. Register for self-assessment promptly to understand and fulfill your tax obligations.

Claiming Tax Back on Side Hustles

As you may already know, side hustles incur unique running costs. You can reduce your side hustle tax bill by claiming allowable expenses. Claiming expenses involves deducting them from your total income, and you are taxed only on your profit. For more information, refer to our guide on claiming allowable expenses.