In the era of side hustles and gig economy jobs, many people are earning extra income outside of their regular employment. Whether it’s through freelancing, selling goods on platforms like Etsy, offering services, or working for delivery companies, it’s essential to understand the tax obligations tied to your side hustle income.

In the UK, any income you earn from a side hustle, in addition to your primary job, may be subject to income tax and National Insurance. Here’s what you need to know about when and how you need to pay tax on your side hustle.

What Qualifies as a Side Hustle?

A side hustle refers to any additional income stream you earn outside of your main source of income or employment. This can include:

• Freelancing: Offering services like writing, graphic design, marketing, or consulting.
• Selling goods: Using platforms like eBay, Etsy, or Depop to sell items.
• Gig economy work: Driving for Uber, delivering food with Deliveroo, or completing tasks through platforms like TaskRabbit.
• Renting out property: Including Airbnb or letting rooms in your home.

The side hustle could be occasional, part-time, or consistent work. Regardless of its frequency, the income you generate may still be taxable.

Tax-Free Trading Allowance

The good news is that the UK offers a tax-free trading allowance. If your side hustle brings in less than £1,000 per tax year, you don’t need to report this income to HMRC or pay tax on it. This applies to any income you make from self-employment, renting out property, or selling goods.

Example:

If you made £800 selling handmade crafts on Etsy in one tax year, you don’t need to worry about paying tax or declaring this income, as it falls under the £1,000 trading allowance.

However, if you earn more than £1,000 in a tax year from your side hustle, you’ll need to declare this income to HMRC through a Self Assessment tax return.

When Do You Need to Pay Tax on Your Side Hustle?

You’ll need to pay tax on your side hustle income if:

• Your total side hustle earnings exceed the £1,000 trading allowance.
• Your total income, including side hustle earnings, pushes you into a higher tax bracket.

Income Tax Bands

• Personal allowance: The first £12,570 of your total income is tax-free.
• Basic rate: If your total income (from both your main job and side hustle) falls between £12,571 and £50,270, you’ll pay 20% tax on earnings within this range.
• Higher rate: If your total income exceeds £50,270, you’ll pay 40% tax on the amount above this threshold.

National Insurance Contributions (NICs)

In addition to income tax, you may also need to pay National Insurance Contributions on your side hustle income. If you’re self-employed, you’ll be liable for Class 2 and Class 4 NICs.

• Class 2 NICs: If your profits from your side hustle are £12,570 or more per year, you’ll pay £3.45 per week.
• Class 4 NICs: If your profits exceed £12,570, you’ll pay 10.25% on profits between £12,570 and £50,270, and 3.25% on profits above £50,270.

How to Register and Report Your Side Hustle Income

Once your side hustle income exceeds £1,000, or if you want to claim expenses and allowances, you must register as self-employed with HMRC. Here’s how:

1. Register for Self Assessment: You can do this online via the HMRC website. You’ll receive a Unique Taxpayer Reference (UTR) number, which you’ll use to file your tax return.
2. File a Self Assessment tax return: At the end of each tax year (by 31st January), you’ll need to file a tax return, detailing your income and allowable expenses.
3. Pay any taxes owed: Based on the information in your tax return, HMRC will calculate how much tax and National Insurance you owe, which must be paid by 31st January following the end of the tax year.

Claiming Expenses to Reduce Your Tax Bill

As a side hustler, you’re allowed to claim business expenses that you incur as part of running your side gig. These expenses can be deducted from your income to reduce your tax bill.

Common Allowable Expenses Include:

• Office supplies: Paper, pens, and other materials needed to perform your work.
• Travel costs: Mileage for business-related trips.
• Software and tools: Subscriptions to software and tools you use to run your business.
• Marketing expenses: Ads or promotional materials for your side hustle.
• Home office expenses: A portion of your household bills if you work from home.

By claiming legitimate expenses, you can reduce your taxable profits, and potentially lower your tax bill.

Example:

If you made £5,000 from your side hustle, but had £2,000 in allowable expenses, you would only be taxed on the £3,000 profit.

Side Hustle Taxation for Specific Platforms

Different platforms and types of side hustles may come with their own tax considerations. Here are a few examples:

1. Freelancers and Gig Workers

Freelancers and gig workers typically operate as self-employed individuals, meaning they must register for Self Assessment and report their income and expenses. This applies to services offered via platforms like Fiverr, Upwork, or TaskRabbit, as well as driving or delivering for Uber, Deliveroo, or similar services.

2. Etsy Sellers

If you sell goods on platforms like Etsy or eBay, and your sales exceed the £1,000 trading allowance, you must report this income to HMRC. You can also claim expenses related to materials, shipping, and marketing.

3. Airbnb Hosts

Renting out your property or part of your home through Airbnb or other platforms could mean you’re liable for income tax. However, there’s a Rent-a-Room Scheme that lets you earn up to £7,500 per year from renting out a room in your home before having to pay tax.

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How CANGAF Accountants Can Help with Your Side Hustle Taxes

Managing the taxes for your side hustle can be daunting, especially if you’re balancing it with a full-time job. CANGAF Accountants can help you navigate your tax obligations, maximize your allowances, and ensure that you stay compliant with HMRC.

Our team of expert accountants offers tailored advice and services for side hustlers, freelancers, and small business owners, helping you file accurate tax returns and optimize your tax position.

Contact CANGAF Accountants

• Address: 235 Tonge Moor Road, Bolton BL2 2HR
• Email: info@cangafltd.com
• Phone: 01204 859315
• Website: www.cangafltd.com

Let us take the stress out of managing your side hustle taxes so you can focus on growing your income.