Side Hustles and Tax Rules in the UK

​In the United Kingdom, engaging in side hustles has become a popular way to supplement income. Whether it's freelancing, selling handmade crafts, or offering consulting services, it's crucial to understand the tax implications to ensure compliance with HM Revenue & Customs (HMRC). This article provides an overview of the tax rules governing additional income streams in the UK.​

The Trading Allowance

The UK offers a £1,000 tax-free trading allowance annually. This means individuals can earn up to £1,000 from self-employment or casual services without needing to inform HMRC or pay tax on this income. However, if earnings exceed this threshold, the total income must be reported, and tax is payable on the amount above £1,000. For instance, if you earn £1,500 from a side hustle, tax is due on £500. 

Registering as Self-Employed

Once your side hustle income surpasses the £1,000 allowance, you must register as self-employed with HMRC. This registration is necessary even if you have a full-time job elsewhere. Registration should be completed by 5th October following the end of the tax year in which you earned the income. Failure to register on time may result in penalties. ​

Diverse Income Streams and Tax Implications

Side hustles can take various forms, such as freelancing, tutoring, or selling products online. Some individuals consider alternative methods like investing in stocks, renting out property, or even playing at the best casinos not on GamStop. Those internationally licensed iGaming hubs typically offer a greater variety of payment options and substantial bonuses for players. Hence, they can use those freebies or fund their accounts with their own assets. While some players do get lucky, it’s important to take such games as a pastime activity when resting from some other investments. 

 

On the other hand, diving into digital ventures, such as affiliate marketing and dropshipping, or starting a YouTube channel, can generate recurring and stable revenue. Additionally, offering services on platforms like Fiverr or Upwork, renting out a vehicle through car-sharing apps, or monetising a blog can also provide extra income. It’s important to note that while gambling winnings are generally not taxable in the UK, consistent profits from activities like matched betting may be considered taxable income. Always consult HMRC guidelines or a tax professional to understand the specific tax obligations for your income streams.

Filing a Self-Assessment Tax Return

If your side hustle income exceeds the trading allowance, you’ll need to file a Self-Assessment tax return annually. This process involves detailing your income and allowable expenses. The deadline for paper returns is 31st October, while online submissions are due by 31st January following the end of the tax year. Late submissions can incur penalties, so timely filing is essential. ​

Allowable Expenses

When calculating taxable income, you can deduct allowable expenses incurred solely for your side hustle. These may include costs for materials, marketing, travel, and a portion of home utilities if you work from home. Maintaining accurate records of these expenses is crucial to substantiate your claims in case of an HMRC inquiry. 

National Insurance Contributions (NICs)

In addition to income tax, self-employed individuals may be liable for Class 2 and Class 4 National Insurance Contributions. Class 2 NICs apply when profits exceed a certain threshold, while Class 4 NICs are calculated as a percentage of your profits. Staying informed about current thresholds and rates is important to ensure compliance. ​

Recent Changes to Tax Reporting

As of March 2025, the UK government announced that individuals with side hustle incomes between £1,000 and £3,000 will no longer be required to file a Self-Assessment tax return. Instead, tax owed can be collected through simple assessments or adjusted PAYE tax codes. This change aims to simplify tax obligations for approximately 300,000 taxpayers. 

Common Tax Mistakes to Avoid

Managing a side hustle comes with tax responsibilities, and failing to follow the rules can lead to penalties or unexpected tax bills. Here are some common tax mistakes side hustlers should avoid:

Not Registering with HMRC on Time

If your side hustle income exceeds the £1,000 trading allowance, you must register as self-employed with HM Revenue & Customs (HMRC) by 5th October following the tax year in which you started earning. Failure to register on time can lead to fines and interest on unpaid taxes. Even if you have a full-time job and a side hustle, the additional income must still be reported if it exceeds the threshold.

Failing to Keep Proper Records of Income and Expenses

Keeping detailed records of your earnings and allowable expenses is crucial. HMRC may request proof of income and costs if they audit your tax return. Ensure you track invoices, receipts, and bank transactions related to your side hustle. Using accounting software or spreadsheets can make this process easier and help ensure you don’t overpay or underpay taxes.

Underestimating the Impact of Side Hustle Income on Benefits

If you receive Universal Credit, Child Benefit, or other means-tested benefits, additional income from a side hustle could affect your entitlement. For example, Universal Credit payments decrease as earnings increase. Similarly, if your total income exceeds £50,000, you may have to repay part of your Child Benefit through the High Income Child Benefit Charge. It’s essential to calculate how extra income impacts your benefits to avoid unexpected financial shortfalls.