What is the side hustle tax?

Jan 23, 2024 | Tax Tuesday

In January, the looming Self Assessment deadline typically dominates the tax conversation – and this year is no different. You may recall that HMRC recently announced tighter rules for marketplace platforms when reporting users’ sales.

Although HMRC’s new reporting rules primarily impact the platforms themselves, the news inevitably triggered conversations around a so-called ‘side hustle tax’ on those reselling their pre-loved items.

In this week’s Tax Tuesday, we provide a bit of clarity around the recent announcements and take a look at whether your ‘side hustle’ could be taxed.

So, what has changed?

For you, the side hustler, nothing has changed. There have been no changes to tax legislation for those who sell goods online, whether as a small business or when reselling your own pre-loved items.

The real change lies in increased data sharing between marketplace platforms and HMRC to more closely monitor those surpassing the tax-free trading allowance. So, if you haven’t been correctly reporting your additional income, then you may now be more likely to be pulled up on it by HMRC.

If you’re unclear as to whether your hobby-turned-side-hustle may give rise to tax implications, here’s a breakdown of some of the basics of side-hustling.

What is a side hustle?

The phrase ‘side hustle’ is a relatively new one, referring to something that you do in your spare time to earn a bit of extra income. These are typically based on a hobby or skill that you have, such as writing (blogging/freelance copywriting), crafting (designing clothes/making cards) or even chatting with your friends (podcasting)!

You’ll have heard in the news the likes of Vinted, eBay and Airbnb being cited as examples of marketplace platforms that are now sharing data with HMRC around how much money their customers have made. Previously, HMRC relied on individuals self-declaring their extra income.

What is the trading allowance?

You’ll already be aware that UK taxpayers have a personal tax allowance of £12,570 before they are subject to PAYE income tax. For those earning additional income from a side hustle, there is also a £1,000 tax-free trading allowance. If you earn less than this from your side hustle, then there is no obligation to report it to HMRC or pay tax on it. However, if you make a profit above the £1,000 tax-free trading allowance then that’s where tax liabilities occur.

You must inform HMRC by registering as Self Employed, filing a Self Assessment tax return and paying any extra tax you owe.

How do I pay tax on a side hustle?

If your side hustle really takes off and you exceed the tax-free trading allowance, then there’s a few things you’ll need to do.

You’ll need to inform HMRC of your additional income and register as self-employed. Following this, you’ll need to register for Self Assessment, file a Self Assessment tax return and pay any tax you owe from your profit.

First of all, though, we’d recommend informing HMRC that you’re self-employed as well as in full-time employment – this involves registering your side hustle as a trading business. Which business structure is best for you? You can register as a sole trader, limited company or partnership; each has varied tax implications that will impact your take-home pay differently. You should seek professional advice regarding your structure. Once decided, you can register your business with HMRC. After that, you’re ready to engage with Self Assessment.

If it’s your first time filing a Self Assessment tax return, then you’ll need to register for it with HMRC by 5th October following the tax year you’re filing for. When HMRC receives your registration, they will send you a Unique Taxpayer Reference (UTR). This is what you’ll use to set up your government gateway account so that you can submit tax returns online! From this point, the deadline to file your Self Assessment tax return and pay any tax you owe is 31st January the following year.

For example: If you make over £1,000 profit from your side hustle in the 2023/24 tax year (6th April 2023-5th April 2024), you will need to register for Self Assessment by 5th October 2024, then file your tax return and pay any tax owed by 31st January 2025.