Let’s Break This Down Together...
Earning extra cash from a side hustle? Whether you're selling on Etsy, renting out a room, or offering services, HMRC might want a piece of it.
This guide covers trading allowances, when to register for Self Assessment, and common myths about taxable side income.
By the end, you'll know exactly what counts, what to report, and how to stay compliant while keeping more of what you earn. Let’s dive in!
What Counts as a Side Hustle to HMRC?
HMRC considers any additional income beyond your main job as potentially taxable. This includes income earned by side hustlers, individuals generating income from side gigs or small businesses, as well as online selling that goes beyond occasional decluttering.
Freelance work, consulting, services, rental income, digital content creation, online sellers, selling goods, and providing services online via digital platforms all count as side hustles that might need reporting.
Even cash-in-hand jobs like babysitting, dog walking, or selling homemade crafts can count as taxable income. Selling old clothes through car boot sales or digital platforms is a common side hustle; these activities may be tax-free if kept below certain thresholds, but if you regularly sell or resell items for profit, HMRC may consider you to be running a business.
HMRC doesn’t care what you call it – if you’re making money regularly, they want to know about it.
Do I Need to Tell HMRC About My Side Hustle Income?
The simple answer is: if you earn more than £1,000 from your side hustle in a tax year, yes, you need to tell HMRC. You may also need to pay income tax if your total income, including side hustle earnings, exceeds your personal allowance.
This £1,000 is your “Trading Allowance” – a tax-free buffer for small income streams. Once you pass this threshold, you must register for Self Assessment and may need to pay tax on your earnings.
You need to register by 5 October following the tax year in which you exceeded the allowance. Miss this deadline and you could face penalties.
Even if you’re already paying tax through PAYE in your main job, side hustle income needs separate reporting. If your total income from all sources goes above your personal allowance (currently £12,570), you will need to pay income tax on the amount above this tax-free allowance.
To avoid penalties, always check if you need to pay tax using HMRC’s online tools.
How to Report Your Side Income
If your side hustle earns over £1,000, you’ll need to register for Self Assessment on the HMRC website.
You’ll need to decide whether to register as “self-employed” or as a “sole trader”, depending on the nature and regularity of your side hustle. If your side hustle is run in a business-like way, you are likely considered self-employed and may need to register as a sole trader.
Keep clear records of all paid income and expenses from day one. This will help you accurately report your income, understand your tax liabilities, and stay compliant. A separate bank account for your side hustle makes this much easier.
You can claim legitimate business expenses against your side hustle income, reducing your tax bill. These might include materials, travel, or a portion of household bills. It’s a good idea to seek professional tax advice to ensure you are compliant and to optimise your tax position.
You must file a self assessment return by the Self Assessment tax return deadline, which is 31 January after the end of the tax year (which runs from 6 April to 5 April).
Common Side Hustle Tax Myths Busted
“Cash payments don’t need to be reported” – Wrong! All income, regardless of payment method, counts for tax purposes.
“It’s just a hobby, not a business” – HMRC looks at whether you’re trying to make a profit, not what you call it.
“I don’t make enough profit to worry about” – If you earn over £1,000, you still need to report it, even if expenses mean you don’t owe tax. Even if your side hustle is losing money, you may still need to notify HMRC.
“HMRC won’t notice my small side income” – With digital reporting from platforms like Etsy, eBay, and Vinted. HMRC has more visibility than ever.
“I’m already taxed in my main job” – Your main job tax doesn’t cover side hustle income. Each income source needs proper reporting.
Special Side Hustle Scenarios
Online selling platforms like Etsy, eBay, Vinted and Depop are increasingly sharing data with HMRC. If you're a regular seller, they’ll likely know. Income from trading activities on these platforms must be reported if your total earnings exceed the £1,000 Trading Allowance.
Property income (like Airbnb) has its own £1,000 Property Allowance, separate from the Trading Allowance. If you rent out a furnished room in your home, the Rent a Room scheme may let you earn up to £7,500 tax-free. If you exceed this limit or rent out the whole property, different rules may apply.
If you have multiple side hustles, the £1,000 Trading Allowance applies to your combined income—not each activity separately. For example, selling on Etsy, renting out a room on Airbnb, and flipping furniture must all be added together.
Tax-Efficient Side Hustle Management
Keep meticulous records from day one – you’ll thank yourself when tax return time comes around.
Set aside money for tax as you earn it – a separate savings account with around 25-30% of your profits is a good rule of thumb.
Consider legitimate ways to reduce your tax bill through allowable expenses. Claiming allowable expenses offers tax benefits by reducing your taxable income, making your business more tax efficient. If you register as a sole trader, you can access these tax benefits and further optimise your tax position. Don’t try to claim personal items as business costs.
Think about timing – income received just before or after the tax year end (5 April) can affect which year it’s taxed in.
Digital record-keeping tools can save hours of admin time and help ensure you don’t miss claiming valid expenses.
Final Thoughts
Side hustles can boost your income and offer creative outlets, but understanding your tax obligations is essential to avoid nasty surprises.
HMRC has sophisticated systems to spot unreported income, with penalties that can far outweigh any tax you might have saved by not declaring.
Getting your tax affairs in order early prevents stress and financial penalties. This lets you focus on growing your side business with peace of mind.
Pie.tax: Simplifying Side Hustle Income Tax
Getting your side hustle tax right shouldn't feel like another job on top of your day job and side gig.
Pie.tax, the UK’s first personal tax app, tracks your income in real-time and helps you understand when to register for Self Assessment and how to apply your personal tax allowance where applicable.
With multiple-income dashboards, we help you keep your main job and side hustles clearly separated for tax purposes, making Self Assessment simpler.
Fancy seeing how it works? Pop over to our website to explore the Pie.tax app features.
Quick and Easy Guide to add Multiple Income Source
Follow these steps to track multiple income sources and view real-time tax calculations.
To create an income source, find the 'Quick Add' button in the middle of the navigation bar, select 'Create Income Type' from the top of the screen to open the options menu. Fill in the details for your chosen income type, then Save. You can always view or edit this income in “All Incomes.”Step 1
You can view your real-time tax figures directly on the Pie app's home page. Your latest tax calculations are clearly displayed, giving you an instant overview of your current tax position. Step 2
