Side hustles are on the rise, with more people looking to earn extra income outside their regular job. Whether it’s freelancing, selling products online, tutoring, or offering services, many assume that because it’s a “side” income, it doesn’t need to be taxed…. however, that’s not the case.
If you’re planning on starting a side hustle, here’s what you need to know about tax, self-assessment, and whether you need to register with HMRC.
Is your side hustle taxable?
Yes, any income you earn, even from a side hustle, is taxable in the UK. However, there are some key things to consider:
- The £1,000 trading allowance – If your side hustle earns less than £1,000 per year, you don’t need to register or pay tax.
- Earnings above £1,000 – If your total income from your side hustle exceeds £1,000 in a tax year, you must register for self-assessment and declare it to HMRC.
- Employment and self-employment tax – If you have a PAYE job and a side hustle, you may need to pay tax on your extra earnings separately.
💡 Even if your side hustle earns under £1,000, keeping financial records is a good idea in case your income grows.
Do you need to register as self-employed?
If your side hustle is earning over £1,000, you’ll need to register as self-employed and complete a self-assessment tax return each year.
- Register with HMRC by 5th October following the tax year you start trading.
- You’ll receive a Unique Taxpayer Reference (UTR) to use when filing tax returns.
- You must file your tax return and pay any owed tax by 31st January each year.
How much tax will you need to pay?
The amount of tax you pay depends on your total income (from your job + side hustle):
- Income up to the current personal allowance of £12,570 – no income tax (personal allowance applies).
- £12,571 – £50,270 – 20% income tax
- £50,271 – £125,140 – 40% income tax
- Over £125,140 – 45% income tax
💡 Tip: If your side hustle is profitable, setting aside 20-30% of earnings for tax is a smart move to avoid last-minute surprises.
What about National Insurance?
If your side hustle profits exceed £12,570, you may also have to pay National Insurance Contributions (NICs):
- Class 2 NICs – £3.45 per week if profits are over £6,725.
- Class 4 NICs – 6% on profits between £12,570 – £50,270 and 2% above that.
Note: The Tax and National Insurance thresholds are correct as of February 2025 and may have changed since this blog was written.
What expenses can you claim?
To reduce your tax bill, you can deduct allowable expenses from your side gig income:
- Business-related equipment (laptop, tools, materials).
- Website hosting, software, and online subscriptions.
- Travel expenses (if required for business).
- Advertising and marketing costs.
💡 Keeping track of expenses helps you pay less tax legally – an accountant can ensure you claim everything correctly.
What if you have a limited company and want to start a second business?
If you already own a limited company and want to start another business, you have two main options:
- Run it under your existing limited company – This is ideal if the new business aligns with your current one and reduces admin. However, tax efficiency depends on structure.
- Set up a second limited company – If the businesses are very different, keeping them separate may be better, but this comes with extra admin and costs.
💡 Tip: Running multiple businesses through a group structure can sometimes be more tax-efficient – speak to an accountant to explore the best option.
So, I need an accountant if I’ve “just” got a side hustle?
Many people think a side hustle is “just a bit of extra income” and don’t realise the tax implications (nor can they predict just how fast their business could grow). A professional accountant can:
- Help you register correctly and avoid HMRC fines
- Ensure you claim all allowable expenses to reduce tax
- Advise on whether a sole trader or limited company is best for your second business
- Handle tax returns and keep you compliant while you focus on growing your business
Thinking of starting a side hustle?
Let BAS Associates help you get set up the right way – so you can earn extra income without worrying about tax. Contact us today!
