The side hustle movement in the UK has seen a sharp rise in recent years. More than a third of UK adults now supplement their main income with additional work, and that number is expected to continue climbing. Whether it’s selling handmade crafts on Etsy, freelancing through Upwork, or driving for a rideshare platform, these income-generating activities outside of regular employment are reshaping how people earn a living.
This surge in side hustles has caught the attention of HM Revenue & Customs (HMRC). To ensure everyone is paying the right amount of tax, HMRC has begun working with popular digital platforms such as Amazon, Etsy, Airbnb, eBay, Uber, Deliveroo, and Fiverr. These platforms may now be required to report user earnings, making it harder for side hustle income to go unnoticed.
Selling Personal Items vs. Trading
One of the most common questions side hustlers have is whether the income they earn is taxable. The answer largely depends on the nature of the activity. If you’re occasionally selling personal possessions such as used clothing on Vinted or second-hand books on eBay this is typically not considered trading, and the income is usually not taxable.
However, if you’re regularly buying goods to resell at a profit or producing items to sell, HMRC considers this trading activity. Likewise, if you frequently provide a service, such as graphic design or copywriting, you are likely running a business in the eyes of the tax authorities. These activities cross the line into taxable income, and that means you may have to register and report them.
Understanding the Trading Allowance
In the UK, the trading allowance gives individuals a buffer to earn up to £1,000 of gross income from self-employment or casual income streams without paying tax or reporting it to HMRC. Gross income means total earnings before any expenses are deducted.
If you earn more than £1,000 in a tax year through one or more side hustles, the trading allowance no longer applies in full, and you must report this income to HMRC. At this point, you may need to register for Self Assessment and file a tax return.
The trading allowance is not per side hustle—it applies to the total income from all side hustle activities. If your gross side hustle income from multiple sources exceeds £1,000, even slightly, you are no longer exempt from tax reporting.
Registering for Self Assessment
If your side hustle income exceeds the £1,000 threshold, you are required to register for Self Assessment. Most individuals doing so will register as sole traders, unless they choose to operate under a limited company structure. Being a sole trader is the simplest way to handle side hustle income.
The deadline to register is 5 October following the end of the tax year in which you earned taxable side hustle income. The UK tax year runs from 6 April to 5 April. Failing to register by this deadline may result in financial penalties.
Once registered, you will be required to complete and submit a Self Assessment tax return every year. This includes submitting supplementary forms, usually the SA103 form, where you declare your trading income, allowable expenses, and other relevant details.
Filing Deadlines and Penalties
The deadline for filing a paper tax return is 31 October following the end of the tax year, while the deadline for online returns is 31 January. Missing either of these deadlines will result in a penalty of at least £100, even if you owe no tax.
If your tax return is more than three months late, additional daily penalties may apply. HMRC also charges interest on unpaid taxes and can impose further fines for continued non-compliance.
Tax Bands and Rates
Your side hustle income is added to your other sources of income to determine your total taxable earnings for the year. Based on this total, you will pay tax according to the UK’s income tax bands:
- Personal Allowance: Up to £12,570 – 0% tax
- Basic Rate: £12,571 to £50,270 – 20% tax
- Higher Rate: £50,271 to £125,140 – 40% tax
- Additional Rate: Over £125,140 – 45% tax
These bands apply to most parts of the UK, though rates and thresholds may vary slightly in Scotland. Income tax is only charged on your profits, which is the income remaining after allowable business expenses have been deducted from your gross income.
Online Platforms and HMRC Reporting
Digital platforms have made it easier than ever for people to earn money on the side. But these platforms are now under increasing obligation to share data with tax authorities. In some jurisdictions, such as the EU, platforms are required to report user earnings if the user sells more than 30 items or earns more than €2,000 in a year. The UK is adopting similar transparency measures.
As a result, HMRC is better equipped than ever to track down undeclared income. If your earnings meet or exceed thresholds set by the reporting rules, the platform may send your income details directly to HMRC. This makes it even more crucial for side hustlers to stay compliant and report income accurately.
What Happens If You Don’t Report Income?
Failing to declare taxable side hustle income can lead to serious consequences. If you earn more than £1,000 and do not register or report your income, HMRC may view this as tax evasion.
Tax evasion is a criminal offence that can carry severe penalties, including fines, interest on unpaid taxes, and in some cases, prosecution. The risk of non-compliance far outweighs any potential savings from not reporting side hustle income.
The sooner you register and file your return, the better. HMRC is generally more lenient with individuals who come forward voluntarily to correct past mistakes than with those it discovers through investigation.
Property Rental Income and the Property Allowance
In addition to trading income, many side hustlers generate earnings through property rental. This includes income earned through short-term letting platforms like Airbnb. Similar to the trading allowance, the property allowance allows individuals to earn up to £1,000 in gross rental income without having to report it to HMRC.
If your gross rental income from property is between £1,000 and £2,500 in a tax year, you should contact HMRC directly for guidance. If it exceeds £2,500 after expenses or £10,000 before expenses, you must file a Self Assessment return and complete the SA105 supplementary form to report your income.
Even if the platform you use doesn’t automatically report your income to HMRC, the legal responsibility to declare taxable income lies with you. It’s essential to keep accurate records of all income and expenses related to your rental activities.
Keeping Records and Staying Organised
Whether you’re selling on eBay, offering services on Fiverr, or renting out a spare room on Airbnb, good record-keeping is crucial. You should maintain detailed records of all income received, expenses paid, and invoices issued. These records will be essential when completing your tax return and will help if HMRC ever asks for evidence.
Keep receipts, bank statements, mileage logs, and any other documentation that supports your income and expense claims. Digital tools and apps can make this easier, especially for side hustlers who are not familiar with traditional bookkeeping.
Maintaining accurate records not only ensures compliance but also allows you to claim the correct expenses and reduce your taxable profit. Being organised also makes the process of completing your Self Assessment much less stressful.
The explosion inside hustles has introduced new income streams for millions across the UK, but it also comes with tax responsibilities. Whether you’re occasionally selling online or consistently offering freelance services, you must understand the difference between non-taxable and taxable income.
If your gross side hustle income exceeds £1,000 in a tax year, you must register for Self Assessment, report your income, and pay any tax owed based on your total income and tax band. Penalties for late registration or filing can be severe, and with digital platforms increasingly reporting user income, it’s more important than ever to stay compliant.
What Are Allowable Expenses?
When you run a side hustle and need to file a tax return, one of the key elements in calculating how much tax you owe is understanding allowable expenses. These are business-related costs that can be subtracted from your total income to work out your net profit—the amount on which you’ll be taxed. Deducting all eligible expenses ensures that you only pay tax on your actual earnings rather than your total revenue.
Allowable expenses can range from equipment and tools to travel and marketing costs. However, what you can claim depends on the nature of your side hustle and whether the expense was solely for business purposes. If an expense is partly for personal use, only the business portion is deductible.
Why Claiming Expenses Matters
Claiming legitimate expenses has a direct impact on your taxable income. For example, if you earned £12,000 from your side hustle but had £2,000 in allowable expenses, you’ll only pay tax on £10,000. This could reduce the rate at which you’re taxed and potentially keep you within a lower tax band.
Not claiming what you’re entitled to could mean overpaying on tax, and with many side hustlers earning modest profits, every deduction counts. Good financial records and an understanding of allowable expenses are essential.
Common Allowable Expenses for Side Hustlers
Whether you’re selling goods online, offering freelance services, or driving for a delivery app, many expense types are commonly claimed. Below is a breakdown of categories and examples to help you identify what may apply to your situation.
Office and Workspace Costs
If you work from home, part of your household expenses may be claimable. This includes:
- A portion of your rent or mortgage interest
- Council tax
- Utilities such as gas, electricity, and water
- Internet and phone bills
- Home office furniture or equipment
You can calculate these based on the proportion of your home used for business and how many hours per week it is used. Alternatively, HMRC offers a simplified flat-rate method depending on the number of hours you work from home monthly.
Equipment and Supplies
Any items or materials needed to carry out your side hustle are generally allowable. These include:
- Tools and hardware for tradespeople
- Art supplies for illustrators or designers
- Software and subscriptions for digital work
- Stationery and packaging materials
If a large item such as a laptop or camera is used, it may be considered a capital expense. You may be able to claim this under the Annual Investment Allowance or use capital allowances to deduct part of its cost over several years.
Travel and Vehicle Costs
If you use your vehicle for your side hustle, you can claim travel-related costs, but only for the business portion of usage. Options include:
- Mileage allowance (45p per mile for the first 10,000 miles; 25p thereafter)
- Fuel
- Vehicle insurance
- Parking charges
- Repairs and servicing
You must keep accurate mileage records and distinguish between personal and business use. Public transport fares for business trips are also allowable.
Marketing and Advertising
Promoting your side hustle is an essential part of growing your business. You can claim for:
- Website hosting and domain registration
- Online advertising (Google Ads, social media campaigns)
- Flyers, business cards, or brochures
- Sponsorship and listing fees on selling platforms
These expenses are fully deductible as long as they are directly linked to generating income.
Professional Services
If you hire help to manage parts of your side hustle, those costs are deductible. This includes:
- Accounting or bookkeeping services
- Legal advice
- Professional memberships or subscriptions
- Consultancy or freelance support you outsource to others
Even if you use software to manage your invoices, finances, or scheduling, the subscription fees may be allowable.
Training and Education
Courses that directly relate to your current side hustle may be claimable. For example, a photography course for someone who sells prints or a digital marketing class for a freelance marketer. However, general education or courses to help you enter a new trade are typically not allowed.
Insurance and Banking
Many side hustlers take out public liability or product insurance. These premiums are deductible. Also, if you maintain a separate business bank account, the associated fees are considered allowable.
Bank charges, credit card interest on business purchases, or PayPal fees from selling platforms may also be claimed.
Examples of Side Hustles and Their Typical Expenses
Online Retailer (eBay, Amazon, Etsy)
An individual selling products online may incur expenses like:
- Stock and raw materials
- Packaging and postage
- Seller fees or platform commissions
- Photography equipment for product listings
- Internet costs and workspace share
Delivery Driver (Uber Eats, Deliveroo)
Typical expenses may include:
- Fuel and vehicle maintenance
- Mobile phone and data plan
- Vehicle insurance for business use
- Equipment such as a delivery bag or rack
- Uniform or branded clothing
Airbnb Host
For those letting out a room or property:
- Cleaning services
- Property maintenance
- Utilities proportionate to rental time
- Internet and TV license during guest stays
- Platform service fees
Freelancers (Writers, Designers, Developers)
Self-employed professionals may deduct:
- Laptops, tablets, and accessories
- Software subscriptions (Photoshop, WordPress, coding tools)
- Internet and phone costs
- Coworking space fees
- Reference books or online resources
Using Simplified Expenses
To reduce complexity, HMRC allows sole traders and partnerships to use simplified expenses. This is a flat-rate approach available in specific cases, such as:
- Business use of home (based on hours per month)
- Vehicle usage (mileage instead of detailed cost records)
- Living on business premises (e.g., guesthouse or bed and breakfast)
Although convenient, simplified expenses may not always be the most tax-efficient. It’s a good idea to compare simplified rates with actual costs to see which gives you the larger deduction.
What You Cannot Claim
Some expenses, even if related to your business, are not allowable. These include:
- Fines and penalties (e.g., parking tickets)
- Client entertainment
- Personal expenses (non-business clothing, family meals)
- Loan repayments (though interest may be deductible in some cases)
- Private use portions of dual-purpose expenses
If you use an asset for both business and personal reasons—like your phone or car—you must apportion the cost and only claim the business portion. Claiming private expenses as business costs is against HMRC rules and could result in penalties.
Keeping Accurate Records
Accurate and consistent record-keeping is essential when claiming expenses. You should:
- Keep all receipts and invoices
- Maintain digital or paper logs for travel and mileage
- Store bank and credit card statements
- Note the business purpose for each expense
- Update your records regularly to avoid year-end stress
Records must be kept for at least five years after the submission deadline for the relevant tax year. Failure to maintain proper records can lead to fines and complications during a tax review.
Common Mistakes to Avoid
Claiming expenses might seem straightforward, but mistakes are common. Avoid these pitfalls:
- Claiming for personal expenses as business-related
- Forgetting to apportion shared costs
- Relying solely on bank statements without itemized receipts
- Overclaiming for capital equipment
- Not updating records throughout the year
To avoid missteps, get familiar with HMRC guidance and stay updated on any changes that may affect what you can or cannot deduct.
Reinvesting Profits and Planning Ahead
Reducing your tax bill through expense claims not only saves money but allows you to reinvest more in your side hustle. This could mean upgrading tools, expanding services, or launching a marketing campaign. Keeping more of your profits through legitimate deductions is a smart financial strategy.
You should also plan ahead for your tax obligations. Set aside a portion of your income throughout the year so that you’re not caught off guard by a tax bill. Some sole traders choose to make advance payments on account if their tax bill exceeds a certain amount. By understanding allowable expenses and tracking them properly, you place your side hustle on stronger financial footing.
What Is Self Assessment?
Self Assessment is HMRC’s system for collecting Income Tax from individuals and businesses whose tax isn’t automatically deducted from wages, pensions, or savings. This system primarily applies to self-employed people, including those earning through side hustles. If your side hustle earns over the £1,000 trading or property allowance threshold in a tax year, you are legally required to register for Self Assessment and submit a tax return.
Self Assessment allows you to report your total income, declare allowable expenses, and pay any tax due. You also report any other sources of taxable income, such as dividends, pensions, or property rental.
Who Needs to File a Self Assessment Return?
You must file a Self Assessment tax return if you:
- Earn more than £1,000 from self-employment or side hustles
- Receive more than £1,000 in property income (e.g., from Airbnb)
- Have untaxed income from investments, savings, or dividends
- Need to claim tax relief (such as on pension contributions)
- Are a company director (unless you receive no income or benefits)
- Have income over £100,000
Even if you are employed and pay tax through PAYE, you must still file a return if your side hustle exceeds the thresholds. You should also report other taxable income or gains.
Registering for Self Assessment
To file your first tax return, you must first register with HMRC. If you are a sole trader, this means registering as self-employed. You should do this by 5 October following the end of the tax year in which you earned taxable income. For example, if you earned over £1,000 in the 2024/25 tax year (which ends 5 April 2025), you must register by 5 October 2025.
Registration can be completed online. Once registered, you will receive a Unique Taxpayer Reference (UTR) number. This is essential for filing your return.
Important Deadlines
Here are key dates to remember:
- 5 October: Deadline to register for Self Assessment
- 31 October: Deadline for paper tax return submissions
- 31 January: Deadline for online tax returns
- 31 January: Deadline to pay tax due for the previous tax year
- 31 July: Deadline for making second payment on account (if applicable)
Missing deadlines can result in automatic penalties, starting at £100 for late filing.
How to Complete a Self Assessment Tax Return
Once registered and with your UTR number in hand, you can begin completing your Self Assessment tax return. The process includes several steps:
1. Gather Income Information
Start by compiling details of all your income sources. For side hustles, this includes:
- Total sales or income received
- Invoices or receipts
- Bank statements
For employed individuals, include your P60 or P45 to report any PAYE income.
2. Identify Allowable Expenses
Allowable expenses are essential for reducing your taxable profit. Keep your receipts, records, and calculations ready. Only expenses related to the side hustle or rental activity can be deducted.
3. Use the Right Tax Return Forms
The standard Self Assessment form is SA100. You’ll also need to complete one or more supplementary pages depending on your income types:
- SA103S or SA103F: For self-employed income (short or full version)
- SA105: For UK property income (e.g., Airbnb)
- SA102: For employment income
- SA108: For capital gains
If your side hustle is small and straightforward, SA103S (short form) is usually sufficient. Larger, more complex businesses should use SA103F (full form).
4. Submit Online or via Paper
HMRC encourages online submissions, as they are easier and offer built-in checks. You’ll need a Government Gateway account to log in and complete your return.
Online returns are due by 31 January following the end of the tax year. Paper submissions must be sent by 31 October.
5. Declare Other Income
Make sure to include all other taxable income on your SA100. This might include:
- Dividends
- Interest on savings
- Pensions
- Benefits in kind
Declare each type in its corresponding section to avoid underreporting.
6. Calculate and Review
When filing online, HMRC’s system will automatically calculate your tax liability based on the income and expenses you report. Always double-check your entries to avoid mistakes.
If you submit a paper return, you’ll need to manually calculate your tax or wait for HMRC to do it.
7. Submit and Save Copies
Once your return is complete and accurate, submit it through your Government Gateway account. Print or download copies of your submission and confirmation for your records.
Paying Your Tax Bill
Once your return is filed, it’s time to pay your tax bill. You’ll pay tax on your net income after expenses, minus any tax-free allowances you are entitled to. There are three main types of payments:
1. Balancing Payment
This is the total tax you owe for the previous tax year and must be paid by 31 January.
2. Payments on Account
If your tax bill is more than £1,000, HMRC may require you to make advance payments for the following tax year. These are called payments on account and are made in two instalments:
- 31 January: First payment on account (50% of current year’s bill)
- 31 July: Second payment on account (remaining 50%)
These payments will be credited against your next tax bill.
3. Adjustments
If your actual tax due is less than what you paid on account, you’ll receive a refund or offset for future liabilities. If you underpaid, the difference is added to your next payment.
Common Mistakes to Avoid
Filing a tax return isn’t overly complex, but small errors can lead to penalties or overpayment. Here are common mistakes to watch for:
- Forgetting to include all income sources
- Overstating or understating expenses
- Missing deadlines
- Using the wrong supplementary forms
- Failing to register in time
- Not retaining evidence for claims
Always double-check entries and compare figures against your records. Even minor inconsistencies can prompt HMRC to open an inquiry.
Keeping Digital Records
HMRC is transitioning to Making Tax Digital (MTD), which will require businesses and self-employed individuals to keep digital records and submit returns using approved software.
Although MTD for Income Tax has been delayed for most, it’s a good idea to adopt digital record-keeping now. Tools such as spreadsheets or software can help you:
- Track income and expenses
- Store digital receipts
- Generate profit and loss reports
- Stay prepared for MTD
Keeping digital records also ensures accuracy, saves time, and makes it easier to respond to HMRC queries.
What to Do If You Make a Mistake
If you realise you’ve made an error after submitting your return, you can usually amend it within 12 months of the original filing deadline.
For example, if you filed your 2024/25 tax return by 31 January 2026, you can make corrections up until 31 January 2027.
To amend your return:
- Log into your Government Gateway account
- Select the tax return you want to change
- Make and resubmit the corrected version
HMRC may issue penalties for incorrect returns, especially if the error is deemed careless or deliberate. It’s always best to amend promptly and keep documentation.
What Happens After Submission
After your return is submitted, HMRC will process it and confirm any tax owed or due for refund. In some cases, you may be selected for a compliance check. This is routine and doesn’t always mean something is wrong.
You should:
- Respond promptly to any HMRC queries
- Provide requested documents
- Keep copies of your return and confirmation number
HMRC will send a statement of account detailing payments and any future obligations such as payments on account.
Penalties and Interest for Late Filing or Payment
Failing to file your return or pay your tax on time can result in significant penalties:
- £100 for missing the filing deadline (even by a day)
- Additional daily penalties after 3 months
- 5% of unpaid tax after 30 days
- Further 5% penalties at 6 and 12 months
- Interest charges on overdue amounts
Late payments also accrue interest daily. Filing and paying on time avoids unnecessary costs.
When to Seek Help
While many people file their returns independently, there may be times when guidance is needed:
- You have multiple income streams
- Your expenses are complicated or involve capital assets
- You receive foreign income
- You are unsure about allowable deductions
- You want to plan for tax efficiency in future years
Professional help or online tools can provide peace of mind and ensure accuracy. It’s better to get it right the first time than face amendments, penalties, or audits.
Preparing for Next Year
Once your tax return is complete, take steps to simplify future filings:
- Maintain a digital log of all transactions
- Organise receipts monthly
- Track your mileage and expenses consistently
- Set reminders for deadlines
By staying organised year-round, your next tax return will be quicker and easier to complete. Good preparation also helps you budget for tax and avoid surprises when deadlines arrive. In the world of side hustles, tax compliance is just as important as growing your business. Filing your Self Assessment tax return accurately and on time not only keeps you legal but helps you take control of your financial future.
Conclusion
Navigating the tax implications of earning money through a side hustle is essential for anyone supplementing their income in the UK. With the growing number of individuals generating additional earnings through freelancing, online selling, gig platforms, or property rentals, understanding your obligations is more important than ever.
Whether you are casually selling unwanted items or actively running a small side business, the line between hobby and trade can quickly blur. Once your gross income from any form of trading or rental activity exceeds £1,000 in a tax year, it becomes your responsibility to report that income to HMRC, even if it seems small in comparison to your main job.
Registering for Self Assessment as a sole trader is a crucial first step once your side hustle income passes the trading or property allowance threshold. Timely registration and accurate tax return submissions are not just a legal requirement, they help you avoid fines and build trust with HMRC. Completing the correct supplementary pages, tracking your income and allowable expenses, and submitting before the deadline all contribute to a smooth experience with the UK tax system.
The tax you pay on your side hustle will depend on your net profits and how your overall income fits within the current Income Tax bands. Understanding your personal allowance, knowing what expenses you can deduct, and being aware of different types of income classifications can help reduce your tax burden legally and effectively.
For those involved in renting property or offering accommodation through platforms such as Airbnb, the rules are slightly different but follow a similar logic. As soon as your gross rental income exceeds the £1,000 property allowance, you must determine whether you need to contact HMRC or file a full Self Assessment return with the appropriate rental income forms.
Failing to report taxable side income, whether deliberately or out of ignorance, can have serious consequences. In today’s digital economy, platforms are increasingly required to share earnings data with tax authorities. While the reporting thresholds may vary, responsibility ultimately rests with the individual to declare and pay what’s due.
Embracing good record-keeping habits, staying informed of annual tax updates, and treating your side hustle with the same seriousness as your main source of income can go a long way. By doing so, you not only stay compliant but also gain clarity and control over your finances, setting the foundation for potential future growth in your side venture. In a world where flexible work and multiple income streams are becoming the norm, understanding your tax duties isn’t just about compliance, it’s about financial empowerment.