Do you have a side hustle to bring in extra income? If so, you may be unaware of the tax implications. Not to worry – we’ll explain everything.
Side hustles provide a great opportunity to increase income by pursuing your passions. But is a side hustle controversial, and how much can you earn before paying tax on your earnings? To find out more, continue reading.
Do You Need to Pay Tax on a Side Hustle?
Yes, you need to pay tax on your side hustle if you earn a certain amount. This is known as a Side Hustle Tax in the UK. The general Side Hustle Tax rule is that if you earn over £1,000 from your side job, you must pay tax through a self-assessment tax return. You can check if you need to pay tax on your side hustle by visiting HMRC.
What is Side Hustle Tax?
Side Hustle Tax is a tax charged on income made through secondary employment, freelance work, or any additional money beyond your ‘main’ job.
Side hustles vary, from selling baked goods to handmade clothes, or even offering dog walking services in your spare time. A side hustle is considered a trading activity from a legal point of view, which is why we must pay taxes on earnings when applicable.
How Much Extra Can You Earn on a Side Hustle Without Paying Tax?
As mentioned, you can earn up to £1,000 from your side hustle, completely tax-free. This is known as Trading Allowance. Once you exceed your Trading Allowance, you must inform HMRC through self-assessment and pay Side Hustle Tax. It’s important to understand that the allowance applies to the total income made from your side hustles – not just one.
For example:
David has a full-time job. On the side, he walks dogs in his local area and buys clothes to resell for more money. He made £500 from dog walking, and £900 from reselling clothes, earning £1,400 within the tax year (over the £1,000 Trading Allowance).
Therefore, he must pay tax on the excess amount (£400). If he had only made £1,000 or less in that tax year, he wouldn’t have to pay any side hustle income tax as it would have been within the allowance.
Failure to report excess income and pay taxes to HMRC can result in legal repercussions, including fines and penalties.
Selling Personal Items vs Side Hustle
As we know, you may be required to inform HMRC of your earnings from side hustle income. But what about selling personal possessions? This could be selling used clothes, jewellery, or homeware, either bought or received. Let’s find out the difference between each.
| Selling Personal Items | Side Hustle |
|---|---|
| Generally tax-free (unless you sell an item for more than £6,000) | Tax-free up to £1,000 |
| Not classed as trading | Classed as trading |
| Personal possessions could be used clothing, jewellery, or homeware bought or gifted | Side hustles could be dog walking, babysitting, or purchasing clothes with the purpose to sell |
Is a Side Hustle Beneficial?
A recent survey from Finder revealed:
- 39% of Brits have a side hustle
- 14% said that a side hustle makes them no money
- Brits are trying out hustles, but some aren’t successful
- The income from a profitable side hustle averages £210 per week
So, yes, a side hustle can be beneficial for some, but not others. Side hustles offer flexibility, additional income from pursuing a hobby, and skill development. However, some cons could be that side hustles have tax obligations, cost too much to start up, and require too much time management.
Are Side Hustles Controversial?
Yes, side hustles are somewhat controversial. The controversy surrounding the Side Hustle Tax stems from the perception that it may discourage people from starting a side job. Imposing taxes on side hustles could prevent individuals from seeking financial flexibility and trying new things.
One key point of conflict is the administrative burden placed on individuals with side hustles. Managing taxes for a primary job is challenging enough, and adding the difficulties of multiple income streams can be overwhelming. There’s also concern that taxing side hustles affect those with lower incomes, who often engage in such activities to make ends meet.
Expert Assistance Paying Side Hustle Tax
Running a business can be stressful enough, especially when it comes to dealing with taxes. At LJS Accounting Services, we can help. If you think that you may need to inform HMRC and pay tax on earnings above your Trading Allowance, you must do so via self-assessment.
Our friendly and experienced team can assist you, ensuring you’re paying the correct amount of tax while complying with HMRC rules. By letting us step in to help, you can dedicate more time to your side hustle.
Contact us today to speak with a member of our team. We look forward to hearing from you soon!
Keli Evans, Director at LJS Accounting Services, excels in taxation and statutory accounts. With a focus on strong client relationships, she leads a diverse portfolio, overseeing vital financial aspects like VAT, payroll, pensions, and taxation with a holistic and committed approach.
