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Understanding HMRC Tax Side Hustles in the UK: What You Need to Know About HMRC Rules

With more people in the UK starting side hustles, whether it’s freelancing, selling products online, or driving for delivery services, it’s essential to understand the tax rules set by HMRC. Extra income from side gigs is great, but you need to know how it impacts your taxes to stay on the right side of the law.

Here’s what you need to know about how taxes apply to your side hustle income in the UK.

What’s Considered a Side Hustle?

A side hustle is any type of work or activity that brings in money alongside your regular job. Common examples include:

• Freelancing (e.g., writing, graphic design)
• Selling items online (e.g., on Etsy, eBay)
• Driving for rideshare apps (like Uber)
• Delivering food (through Deliveroo or similar services)
• Renting out a property or room (e.g., on Airbnb)

Regardless of how you earn money on the side, HMRC will expect you to pay taxes on it, depending on how much you earn.

Do I Need to Pay Tax on My Side Hustle?

In the UK, most income is taxable, including what you make from side jobs. However, there are allowances that might apply, which can give you some tax-free income from your side hustle.

1. £1,000 Trading Allowance

If your side hustle earns £1,000 or less in a tax year (6 April to 5 April), you won’t have to pay any tax on it. This is known as the trading allowance. So, if you’re selling crafts on Etsy or doing a bit of freelance work and your total earnings don’t go over £1,000, you’re in the clear.

2. £1,000 Property Allowance

For those renting out a room or property (like Airbnb hosts), you can also earn up to £1,000 a year tax-free under the property allowance.

3. Earnings Above £1,000

Once you make more than £1,000 from your side hustle, you’ll need to inform HMRC and possibly pay tax on it. At this point, you’ll need to complete a Self Assessment tax return to declare your income.

How to Register with HMRC for a Side Hustle

If your side hustle brings in over £1,000 in a year, you need to register with HMRC for Self Assessment. Here’s how you do it:

1. Register Online: Sign up for Self Assessment on the HMRC website. Make sure to register by 5 October after the tax year when you earned more than £1,000.
2. Submit Your Tax Return: Once you’re registered, you’ll need to file a Self Assessment tax return every year. The deadline for online submissions is 31 January for the previous tax year.
3. Pay Your Tax Bill: You’ll also need to pay any taxes owed by 31 January. The rate you pay will depend on your total income, including your regular job.

Claiming Expenses for Your Side Hustle

If you earn more than £1,000 from your side gig, you can deduct certain business expenses to lower your taxable income. Keeping track of these expenses can help you reduce your tax bill.

Some common expenses you can claim include:

• Supplies (materials you need for your side business)
• Marketing costs (ads or promotional tools)
• Office-related costs (like internet and software)
• Travel expenses (for work-related trips)
• Professional fees (such as using accounting software or paying for legal advice)

It’s essential to keep receipts and clear records of your expenses so you can report them accurately when you do your tax return.

How Much Tax Will You Owe?

Your side hustle income gets added to your regular income to determine how much tax you’ll owe. Here’s how it works:

• Personal Allowance: You don’t pay tax on the first £12,570 of your total income (for the 2023/24 tax year).
• Basic Rate (20%): Income between £12,571 and £50,270 is taxed at 20%.
• Higher Rate (40%): Income between £50,271 and £125,140 is taxed at 40%.
• Additional Rate (45%): Any income over £125,140 is taxed at 45%.

For example, if you earn £30,000 from your regular job and £5,000 from your side hustle, your total income will be £35,000. This puts you in the basic rate band, so your side hustle income will be taxed at 20%, minus any allowable expenses.

National Insurance on Side Hustle Income

Along with income tax, you might also need to pay National Insurance Contributions (NICs) on your side hustle earnings, depending on how much you make.

• Class 2 NICs: If your side gig earns more than £12,570, you’ll pay £3.45 per week.
• Class 4 NICs: If your profits exceed £12,570, you’ll pay 9% on profits up to £50,270 and 2% on profits over that.

What Happens If You Don’t Declare Side Hustle Income?

Failing to declare your side hustle earnings can lead to penalties and fines from HMRC. It’s essential to stay on top of your tax obligations to avoid issues down the road. HMRC has become more vigilant about side income, so it’s better to report your earnings accurately and on time.

Final Thoughts

If you’ve got a side hustle in the UK, knowing the tax rules is vital to staying compliant with HMRC. Whether your side job is small or substantial, understanding your tax obligations, keeping records of your income and expenses, and filing your tax return will keep you on the right track.

By registering for Self Assessment, staying organised, and taking advantage of allowable expenses, you can make sure your side hustle remains both rewarding and hassle-free.