Side hustles are no longer a niche trend in the UK. With the rising cost of living and increased opportunities to earn money online or offline, more people are looking for additional sources of income. A side hustle is any job or activity that generates extra income outside of your primary employment or main source of income. For example, selling on eBay, renting out a room on Airbnb, freelancing online, or offering services locally such as tutoring or cleaning.
Statistics suggest that more than a third of UK adults now have a side hustle, and that figure is likely to increase. Whether it’s turning a hobby into a small business or taking on weekend gigs to supplement a salary, side hustles are reshaping how individuals manage their finances. But while these ventures can be rewarding, they also come with tax responsibilities that many side hustlers are unaware of.
HMRC and Side Hustle Monitoring
The increasing number of people earning money through side activities has caught the attention of HMRC. As the UK’s tax authority, HMRC is committed to ensuring that all taxable income is properly declared and taxed. In recent years, HMRC has stepped up efforts to monitor income from digital platforms, especially as more people engage in e-commerce, gig economy work, and online freelancing.
Popular platforms such as Amazon, Etsy, Airbnb, Uber, Deliveroo, Fiverr, and Upwork are all being watched more closely. HMRC has informed these platforms of their obligation to report seller and service provider income under certain conditions. If someone is consistently earning income through any of these platforms, they may be required to report it, even if the income seems modest.
Many users of these platforms are unaware that their activities could be classified as trading. This misunderstanding can lead to unintentional tax non-compliance, which carries potential penalties. Understanding when a side hustle becomes taxable and how to handle tax obligations is key to avoiding issues with HMRC.
What Counts as a Side Hustle?
A side hustle can take many forms. For some, it may be selling old personal items on online marketplaces. For others, it may be buying items wholesale and reselling them at a markup. It could involve using existing skills to offer services, such as freelance writing, web design, dog walking, or teaching music lessons. Any consistent activity undertaken with the intent of generating income can be considered a side hustle.
However, there’s an important distinction between occasionally selling personal items and engaging in trade. If you sell an old sofa, a few books, or unwanted clothes, you’re simply getting rid of personal belongings. These types of sales are not taxable and don’t require reporting.
But if you’re regularly buying goods to sell at a profit, or making things with the intention of selling them, HMRC sees this as trading activity. Similarly, offering paid services, whether digital or in-person, falls into the category of self-employment. Once these activities generate a certain amount of income, tax obligations arise.
Understanding the Trading Allowance
To make things easier for people with small income streams, the UK government introduced the trading allowance. This allowance lets you earn up to £1,000 per tax year from trading or casual income without paying tax or notifying HMRC.
The key word here is gross income, which means the total amount you receive before deducting any expenses. If your income from all side hustles combined stays under this threshold, you are not required to register for self assessment or pay any income tax on it. This allowance is useful for those who sell occasionally or do a few small jobs a year.
However, as soon as your gross income exceeds the £1,000 limit in any given tax year, even by a small amount, you must register for self assessment and report your earnings to HMRC. This applies regardless of how much profit you make. Even if your expenses reduce your profits to near zero, it is the gross income that determines whether you need to register.
Examples of Taxable and Non-Taxable Activities
To clarify, here are some examples of when a side hustle is not taxable:
- Selling second-hand clothes from your wardrobe on Vinted once or twice a year
- Getting rid of old vinyl records, furniture, or electronics through local ads or boot sales
- Occasionally helping a friend move house for a small thank-you gift
These activities are generally classed as personal transactions or gifts and are not subject to tax. But the following activities may be taxable if they exceed the trading allowance:
- Selling handmade goods regularly on Etsy or craft fairs
- Offering paid social media management or graphic design services
- Reselling discounted products for a profit on online marketplaces
- Driving for a ride-share app in your spare time
In these situations, if your total gross income from such activities exceeds £1,000 in a tax year, you must report it.
How and When to Register with HMRC
If you earn over £1,000 in gross trading income in a single tax year, you need to register with HMRC as self-employed. This does not mean setting up a limited company; you simply register as a sole trader.
The deadline to register is 5 October following the end of the tax year in which you earned the income. For example, if your side hustle income exceeded £1,000 between 6 April 2024 and 5 April 2025, you must register by 5 October 2025.
Registering involves creating an online account with HMRC and providing your personal and business details. Once registered, you will be issued a Unique Taxpayer Reference (UTR), which is required when filing your tax return.
Failing to register on time can result in penalties, especially if HMRC believes that the failure was deliberate or persistent. Even if the registration seems like an administrative hassle, it is a legal requirement that protects you from future complications.
Filing Your Tax Return
After registering, you will need to complete a self assessment tax return each year. The standard tax return form is supplemented with specific pages that relate to self-employment income. For side hustle activities, you’ll usually need to fill in the SA103 form.
You’ll be required to report:
- Your total income from all side hustle activities
- Any allowable expenses (such as materials, tools, software subscriptions, or transport costs)
- Any tax relief or other allowances you’re entitled to claim
You can either choose to deduct the £1,000 trading allowance from your income or list your actual expenses. You cannot do both, so it’s worth calculating which option is more beneficial in terms of reducing your taxable income.
The deadline for submitting your online self assessment tax return is 31 January following the end of the tax year. So, for the 2024–2025 tax year, your return must be filed by 31 January 2026. There’s an automatic £100 fine if you miss the deadline, with additional charges if the return is significantly late.
Understanding Income Tax Bands
Once you’ve filed your return, you’ll be responsible for paying any income tax due on your profits. In the UK, everyone is entitled to a personal allowance, which is the amount of income you can earn each year without paying tax. For most people, this allowance is £12,570.
Income above this level is taxed based on the following bands (for England, Wales, and Northern Ireland):
- Basic rate: 20% on income between £12,571 and £50,270
- Higher rate: 40% on income between £50,271 and £125,140
- Additional rate: 45% on income over £125,140
If your main job already uses up your personal allowance, any profit from your side hustle will be taxed at your applicable rate. It’s important to factor in your full earnings from all sources when estimating your tax liability.
Scotland uses a slightly different set of tax bands, so if you’re based there, be sure to check the regional tax thresholds.
What About Property Income?
In addition to the trading allowance, there is a property allowance for people who earn money from renting out property. This allowance also stands at £1,000 per year. If your gross rental income is under this amount, you don’t have to report it to HMRC.
If your property income exceeds this threshold, the tax rules become more complex. If your income is between £1,000 and £2,500 per year, you should contact HMRC directly to discuss your situation. If your rental income is more than £2,500 after expenses, or over £10,000 before expenses, you must complete a self assessment tax return and the SA105 form specifically for property income.
This includes income from platforms like Airbnb, which are treated as short-term rentals. Even occasional letting of a spare room could be considered taxable if it generates income above the allowance.
Getting Organised: Keeping Track of Side Hustle Income
Once your side hustle crosses the trading allowance threshold, keeping good records becomes essential. From the moment you earn over £1,000 in gross income in a single tax year, you must be prepared to track everything related to your side hustle. This includes payments received, invoices sent, costs incurred, and any business-related expenses.
Many side hustlers operate casually, without formal systems in place. However, once tax comes into the equation, detailed recordkeeping becomes a legal requirement. HMRC expects accurate information when you file your self assessment tax return, and being unable to supply evidence could lead to issues in the event of an audit.
You don’t need complicated accounting software to stay organised. A basic spreadsheet can be enough for many sole traders. What matters is that all income and expenses are clearly recorded, with dates, descriptions, and supporting documentation such as receipts or bank statements. Ideally, you should keep your personal and side hustle finances separate by using a dedicated bank account.
Calculating Your Profits
As a sole trader, you only pay tax on the profit you make—not your total income. Profit is calculated by subtracting your allowable expenses from your total income.
Let’s say you earn £3,000 from selling handmade goods online. You spend £1,000 on materials, packaging, and platform fees. Your profit is £2,000. That is the amount on which you’ll be taxed, assuming you’re not claiming the flat £1,000 trading allowance instead of expenses.
If you’re unsure which method is more tax-efficient, you can calculate both:
- Method 1: Claim the trading allowance. You subtract £1,000 from your total income and pay tax on the remaining £2,000.
- Method 2: Deduct actual business expenses. If your allowable costs are more than £1,000, this method could reduce your taxable income further.
You are only allowed to choose one method each tax year, not both. Reviewing your income and expenses in advance will help you decide which option works best for your circumstances.
What Counts as an Allowable Expense?
Allowable expenses are business costs that are necessary for the operation of your side hustle. These expenses reduce your profit, which means you pay less tax. HMRC provides guidance on what can and cannot be claimed.
Common allowable expenses for side hustlers include:
- Materials, stock, and supplies
- Website hosting and domain registration
- Advertising and marketing (including social media ads)
- Platform and payment processing fees
- Postage and packaging costs
- Business insurance
- Software subscriptions
- Phone and internet usage (proportional to business use)
- Home office costs (a percentage of rent, utilities, and council tax)
- Travel expenses for business purposes
To claim an expense, it must be wholly and exclusively used for your business. If you buy a laptop that’s used 50 percent for business and 50 percent for personal use, you can only claim half of the cost as an expense.
You should also keep receipts and invoices for every claim you make. While you don’t submit these with your tax return, you must retain them for at least five years after the 31 January submission deadline for the relevant tax year.
Business Use of Home and Simplified Expenses
Many side hustlers run their activities from home. HMRC allows you to claim a portion of your household costs, such as electricity, gas, rent, and internet, if your home is used for business. This is called claiming for business use of your home.
There are two ways to do this:
- Claim actual costs. You calculate the proportion of your bills that apply to your business. For example, if you work from one room in a five-room house and use it exclusively for business 40 hours per week, you can claim a reasonable share of the relevant costs.
- Use simplified expenses. HMRC offers a flat-rate deduction based on the number of hours you work from home each month. This avoids the need for complex calculations.
Simplified expenses can also apply to vehicle costs if you use your own car for business purposes. Instead of claiming fuel, insurance, and repairs, you use a flat rate per business mile driven.
Managing Multiple Income Streams
If you have more than one side hustle or generate income through different types of activities, you need to calculate your total gross income to determine whether you exceed the trading allowance. HMRC requires you to combine all your trading income to assess your tax obligations.
For example, if you earn £700 from freelancing and £500 from selling items online, your total is £1,200. This exceeds the £1,000 allowance, so you must register for self assessment and report the full amount.
If you also earn money from property rental, interest, dividends, or other sources, these must also be reported in your tax return. Each income type has its own section or supplementary page. Keeping clear records for each type of income will help you file accurately. It will also allow you to claim the correct expenses and avoid missing any necessary details.
The Self Assessment Tax Return Process
Filing your tax return involves providing HMRC with a full picture of your income and expenses for the year. The process typically involves the following steps:
- Register for self assessment: This must be done by 5 October following the end of the tax year in which your side hustle income exceeded the trading allowance.
- Receive your Unique Taxpayer Reference (UTR): Once registered, you’ll be issued a 10-digit UTR number. This is essential for managing your tax account.
- Log in to your personal tax account: You can file your return online through HMRC’s digital platform.
- Complete the SA100 form: This is the main self assessment tax return form, where you report general income details.
- Add supplementary pages:
- SA103S or SA103F for self-employment income
- SA105 for property income
- SA101 for additional income (e.g. dividends, benefits, savings)
- Report your income and expenses: You must enter all figures accurately, including whether you’re claiming the trading allowance or actual expenses.
- Submit your return by 31 January: This is the online filing deadline. If you’re filing a paper return, the deadline is 31 October.
- Pay any tax owed: Your tax bill must also be paid by 31 January. If your liability is over £1,000, you may also have to make advance payments toward the next tax year.
Payment on Account Explained
If your tax liability for the year exceeds £1,000, HMRC may require you to make two advance payments for the following tax year. These are called payments on account and are due on:
- 31 January (first payment)
- 31 July (second payment)
Each payment is 50 percent of your previous year’s tax bill. For example, if you owed £2,000 for 2024–2025, you’ll need to pay £1,000 on 31 January 2026 and another £1,000 on 31 July 2026 toward the 2025–2026 tax year.
If your income reduces the following year, you can apply to reduce your payments on account. If you overpay, the extra will be refunded or offset against your next bill.
Avoiding Penalties and Staying Compliant
The most common penalties for side hustlers relate to late registration, missing tax return deadlines, or underreporting income. Here’s how to avoid them:
- Register on time, by 5 October following the relevant tax year.
- Submit your tax return before 31 January to avoid the standard £100 late filing penalty.
- Ensure your figures are correct. Mistakes can lead to additional fines or investigations.
- Keep your records for at least five years in case HMRC requests them.
- Report all taxable income, even if it comes from multiple sources.
HMRC understands that many new sole traders are not professional accountants. However, ignorance of the rules is not a defence if you are audited. Staying informed and taking tax compliance seriously will help you build a sustainable and stress-free side hustle.
Knowing When to Hire a Professional
While many people are comfortable filing their own tax return, others may benefit from professional help. If your tax situation becomes complex—due to multiple income streams, higher earnings, or overseas transactions—it may be wise to consult a tax adviser.
An accountant or tax specialist can help you:
- Understand what you owe and when
- Claim all available deductions
- Ensure you comply with changing tax rules
- Minimise the risk of errors or penalties
Even if you prefer to file on your own, getting advice the first time you go through the self assessment process can provide peace of mind and improve your confidence in managing side hustle finances.
Side Hustle Taxes in the UK: What to Know Beyond the Basics
As side hustles become more embedded in the UK economy, more individuals find themselves navigating the complexities of tax for the first time. Whether selling handmade items, offering freelance services, renting through Airbnb, or driving for a delivery platform, the lines between hobby and taxable trade can blur quickly. After understanding thresholds and registration obligations, it’s vital to go deeper into tax deductions, payment strategies, record-keeping requirements, and how to handle investigations.
Allowable Expenses and What You Can Claim
Once your side hustle income exceeds the £1,000 Trading Allowance, the good news is you are only taxed on your profits. That means you can deduct allowable business expenses from your income before calculating your tax liability. Knowing what expenses you can claim helps reduce your taxable income and increases your take-home profit.
Common Expenses for Side Hustles
The type of expenses you can claim depends on the nature of your side hustle. Here are examples by category:
For freelancers or consultants:
- Office supplies like pens, paper, and ink
- Computer equipment and software
- Advertising and promotion costs
- Web hosting and domain registration fees
- Subscriptions to professional tools and services
- Phone bills (proportion used for business)
- Work-related travel and accommodation
For delivery drivers or ride-share earners:
- Vehicle insurance
- Fuel and oil
- Vehicle maintenance and servicing
- Parking and toll fees
- Mobile phone usage for work
- Interest on car loans (if used for the business)
For crafters, sellers, and online retailers:
- Raw materials
- Packaging supplies
- Postage and shipping
- Platform fees (e.g., Etsy or eBay)
- Advertising costs
- Utility bills if working from home
- Equipment like sewing machines or crafting tools
For Airbnb or property lets:
- Cleaning fees
- Furniture and fittings
- Council tax, utilities, and insurance (if renting out part of your home)
- Mortgage interest on rental property
- Repairs and maintenance
- Agency or platform fees
The rule of thumb is that an expense must be incurred “wholly and exclusively” for the purpose of running your business. If an expense is shared between personal and business use (like internet or rent), you must apportion it fairly.
Cash Basis vs Traditional Accounting
Side hustlers often use one of two methods to calculate profit: cash basis or traditional (accrual) accounting. The method you choose affects how you report income and expenses.
Cash Basis Accounting
With this method, you only declare income when it is received and claim expenses when they are paid. It’s simpler and more suited to small-scale traders, including side hustlers with turnover under £150,000. You don’t need to account for unpaid invoices or outstanding bills.
Cash basis is generally the default for sole traders unless you opt out. It provides a more accurate picture of available cash but may not be ideal if you have significant stock or rely on credit.
Traditional (Accrual) Accounting
Under this method, income is recorded when it is earned (not received), and expenses are recorded when they’re incurred (not paid). It’s more suitable if your side hustle involves complex transactions, significant stock, or you wish to claim interest and bank charges over £500.
Whichever method you choose, consistency is key. You’ll need to stick to it for each tax year unless you have a reason to switch.
National Insurance Contributions for Side Hustlers
Besides Income Tax, UK side hustlers may be liable to pay Class 2 and Class 4 National Insurance contributions (NICs) if their profits exceed certain thresholds.
Class 2 NICs
If your side hustle profits exceed the Small Profits Threshold, currently £6,725, you must pay Class 2 NICs. These are set at a flat weekly rate. If you earn below the threshold, you can make voluntary contributions to protect entitlements like the State Pension.
Class 4 NICs
If your profits exceed £12,570, you must also pay Class 4 NICs. These are calculated as a percentage of your annual profits. Class 4 is charged at 9% on profits between £12,570 and £50,270 and 2% on profits above £50,270.
Self Assessment returns automatically calculate NICs based on the profit figures you provide.
Record-Keeping Responsibilities
Even if your side hustle seems casual, you are expected to keep accurate records. Good bookkeeping will not only help with tax calculations but also protect you if HMRC requests evidence.
What You Should Keep
Your records should include:
- Sales invoices and receipts
- Bank statements and PayPal or payment platform reports
- Purchase receipts for materials or tools
- Mileage logs for business travel
- Proof of rent or utility payments if claiming part of household bills
- Communications or contracts with clients
- Copies of tax returns and correspondence with HMRC
You can use a spreadsheet, accounting software, or apps tailored to freelancers and sole traders. Records must be kept for at least five years after the 31 January submission deadline of the relevant tax year.
Digital Record-Keeping and Making Tax Digital (MTD)
Although MTD doesn’t currently apply to all side hustlers, it is expanding. As of April 2026, MTD for Income Tax will become mandatory for self-employed people and landlords earning over £50,000 annually. From April 2027, this will extend to those earning over £30,000.
MTD will require you to keep digital records and submit updates quarterly using compatible software. Preparing for this now could ease your future transition.
Working a Side Hustle While Employed
Many people run a side hustle alongside a salaried job. In these cases, your employer usually deducts tax through PAYE, but you’re still responsible for declaring additional self-employment income.
Understanding Dual Income Taxation
Your tax on side hustle earnings is calculated based on your total income from all sources. If your main job uses your entire Personal Allowance, all your side hustle profit will be taxed at 20% or higher, depending on your total income level.
Although HMRC may adjust your tax code to collect some of the tax from your wages, you must still file a Self Assessment return and report all self-employed income separately.
Student Loan Repayments and Other Deductions
If you have a student loan, you may need to make additional repayments through your tax return if your total income (employment plus side hustle) exceeds the relevant threshold. This applies even if your employer is already deducting repayments via PAYE.
Similarly, you may face High-Income Child Benefit Charge or tapered Personal Allowance reductions if your total income exceeds £50,000 or £100,000, respectively.
How HMRC Monitors Side Hustle Income
Thanks to international data-sharing agreements and UK legislation, HMRC has access to increasing volumes of income data. Digital platforms are now legally required to report users’ earnings, particularly those who cross certain thresholds.
Platform Reporting Obligations
Online platforms that facilitate sales or services, such as Airbnb, Etsy, Uber, and eBay, are required to collect and share seller earnings data with HMRC. This allows HMRC to identify individuals who may be underreporting income or not filing tax returns at all.
From January 2024, the UK has implemented the OECD’s “Model Rules for Reporting by Digital Platforms.” This means platform operators must report the names, addresses, tax ID numbers, and earnings of users who exceed thresholds—typically:
- More than 30 transactions per year
- More than €2,000 (around £1,700) earned annually
If you’re close to or above this level, you should assume your income is being monitored and prepare to file accordingly.
Digital Footprints and Bank Scrutiny
Beyond platform reports, HMRC also uses AI tools and data analytics to monitor bank transfers, online ads, and even social media accounts to detect undeclared business activity. If you’re actively promoting services or regularly receiving payments, HMRC may follow up.
Penalties for Non-Compliance
Failure to file a return, pay owed tax, or register in time can result in penalties. The longer the delay, the more expensive it becomes.
Missed Deadlines
- Late filing of a Self Assessment return results in an automatic £100 penalty, even if no tax is owed.
- Returns over three months late incur additional daily penalties up to £900.
- After six months, a further penalty of 5% of the tax owed is applied.
- Interest is charged on late payments.
Tax Evasion Consequences
Deliberately failing to report income is considered tax evasion. This is treated seriously and may lead to:
- Substantial fines
- Loss of allowances
- HMRC investigations
- Criminal prosecution in severe cases
In less serious cases, HMRC may offer the chance to settle via the “Let Property Campaign” or “Digital Disclosure Service.” Voluntarily disclosing undeclared income typically results in lower penalties than if HMRC discovers it first.
When to Get Professional Help
While many side hustlers manage their own taxes, it can be helpful to consult a tax adviser or accountant if:
- Your side hustle income is complex or fluctuates
- You are unsure which expenses are allowable
- You have both self-employment and rental income
- You are entering higher tax brackets due to your hustle
- You’ve been contacted by HMRC and don’t know how to respond
Even a one-off consultation can save you money, ensure compliance, and give you peace of mind.
Conclusion
As side hustles continue to grow in popularity across the UK, so too does the need for individuals to understand and meet their tax obligations. Whether you’re selling handmade crafts, offering freelance services, delivering takeaways, or renting out a spare room, HMRC is paying close attention to income generated outside of traditional employment. Platforms like eBay, Airbnb, Etsy, Uber, and Fiverr are now required to share user earnings with the tax authority, making it increasingly difficult to fly under the radar.
The key takeaway is simple: if you earn more than £1,000 from your side hustle in a given tax year, you must assess whether you need to register for Self Assessment and file a tax return. It’s not only a legal requirement but also a smart move to stay on top of your finances, avoid penalties, and keep your operations running smoothly.
Understanding the differences between personal sales and business trading, being aware of the thresholds and deadlines, and keeping accurate records of your earnings and expenses are essential practices for anyone with a side hustle. Don’t assume that occasional income won’t be scrutinized — HMRC’s digital monitoring tools are growing more sophisticated, and non-compliance can lead to steep fines or legal consequences.
By staying informed and organised, you can enjoy the benefits of your side hustle while remaining fully compliant with tax regulations. Whether it’s a passion project or a growing secondary income stream, treating it with the seriousness of a business will serve you well in the long run.