Understanding taxes for your side hustle

Customisable business insurance
07 December 2022
2 minute read

This article was updated in January 2024.

When we asked side-hustlers about their taxes*, one in five were unsure about which taxes they need to pay.

To help address this important issue, TaxScouts Accountant Natalie Field answers some of the most common questions about tax for side hustles.

Am I considered self-employed if I have a side hustle?

In short, yes. You're considered to be self-employed if you earn money outside of the classic PAYE system — this includes selling on Etsy, Depop or eBay, for example.

Do I need to pay tax for my side hustle?

This depends on how much you earn. On top of the standard Personal Allowance of £12,570, you're entitled to a £1,000 tax-free trading allowance. So you'll only pay tax for your side hustle if it brings in more than £1,000 a year (once you've taken expenses into account).

As of January 2024, side hustle sites including Vinted, Airbnb, and eBay will collect and share details of transactions with the tax authorities, allowing HMRC to seek out anyone who should be declaring any extra income but isn't.

How do I calculate tax for my side hustle?

When you work for an employer, they'll deduct both Income Tax and National Insurance contributions from your monthly salary for you. But when you have a side hustle, you're responsible for calculating and paying your tax bill.

This can seem a bit daunting, but there are a number of calculators online — like the TaxScouts calculator — that make it easy to work out how much tax you need to pay.

What is a Self Assessment?

Self Assessment is HMRC's system for collecting Income Tax. You'll need to complete a Self Assessment tax return if you earn more than £1,000 from your side hustle.

You should register for Self Assessment by 5 October after the end of the tax year (which runs from April to April) in which you earned your money, and you need to complete your tax return by 31 January the following calendar year.

While some people tackle their tax returns by themselves, the Self Assessment process is notoriously complicated and jargon-filled — so many others look for help. TaxScouts can process it all online for you, eliminating any tax stress.

Whichever way you choose to do your Self Assessment, it's important that your return is accurate and completed on time. If you miss the January deadline, you could liable for an immediate £100 fine. Not exactly a good start to the year!

What am I allowed to expense?

When you complete your Self Assessment tax return, you’ll find a section for reporting your allowable expenses. Allowable expenses are tax deductible, which means they can be subtracted from your side hustle's turnover so you only pay tax on the remaining profit.

You can only expense certain costs that are essential to keeping your side hustle running. And if a purchase is used for business and personal reasons, you can only claim the portion that's used for business.

*Survey of 2,002 people with side hustles conducted by Censuswide, on behalf of Superscript, between 10-15 September 2020.

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