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UK Side Hustle Tax: A Complete Guide

Published by Sanjay Gautam
Published Date: January 8, 2024
Categories: Income Tax, Tax

In the modern gig economy, side hustles have become a prevalent means of supplementing income, pursuing passions, and achieving financial goals. However, as side hustlers explore entrepreneurial endeavours, it is important to navigate the complex terrain of taxation.

Before diving into the complexities of side hustle taxes, shedding light on essential considerations, optimisation strategies, and the role of professional services, let us understand why it has become a hot topic in 2024.

Latest Development Side Hustle Tax

Starting from January 1st, 2024, HM Revenue & Customs (HMRC) mandates digital platforms like Airbnb, Amazon, eBay, Vinted, Uber, Deliveroo, Fiverr etc to gather data regarding their users' earnings.

Latest Development Side Hustle Tax

This development implies that individuals who have never reported their income from these platforms may now come under the scrutiny of HMRC, potentially leading to significant tax bills or even fines if they fail to comply with the established legal requirements.

By 31 January 2025, the data gathered by platforms will be transmitted to both HMRC and the respective individuals.

Defining Side Hustle Income

Side income, often derived from freelance work, online gigs, or part-time endeavours, is subject to taxation. It's essential to recognise that even small-scale earnings are subject to tax obligations.

Here are some common examples of side income:

  • Renting Property or spare room on platforms like Airbnb, Booking.com etc
  • Selling of products/items through online platforms like Etsy, eBay, or Amazon
  • Freelancing in sectors such as writing, graphic design, programming, or marketing
  • Blogging/Vlogging and earning through ads, sponsorships, or affiliate marketing
  • Business consulting, career coaching, or financial consulting
  • Providing tutoring services
  • Offering fitness training services, either in-person or online, to individuals or groups
  • Earning money from photography services for events, portraits, or stock photos
  • Caring for pets or offering dog-walking services for pet owners
  • Offering translation services for documents or communication in multiple languages

Side Hustle Allowance

In case your income from side hustle in a tax year is less than £1,000, it is not taxable, and you do not have to tell HMRC about it.

If you are earning more than £1,000 from your side hustle, you are liable to pay tax on such income subject to the personal allowance of £12,570. In another words, if you earn through side hustles only you will not be subject to income tax on profits below £12,570.

Registration to Declare Side Hustle Income

If you are already registered in HMRC for self-Assessment and has Unique Tax reference number (UTR), you can easily declare the side hustle income and pay tax on such income.

If you are not registered and do not have a main job you need to register as self-employed for self-assessment tax return.

Taxability of Side Hustle Income

Income generated from side hustle is regarded as part of your overall income, and as such, it is subject to income tax. It is important to comprehend the tax brackets and rates to ensure precise calculations of the tax liability associated with your side income.

Band

Taxable Income

Tax Rate

Personal Allowance

Up to £12,570

0%

Basic Rate

£12,571 to £50,270

20%

Higher Rate

£50,271 to £ 125,140

40%

Additional Rate

Above £ 125,140

45%

In the UK, the income tax system operates on a tiered structure, commonly referred to as tax brackets. Different portions of your income fall into different tax brackets. You move into higher tax brackets as your income increases, which may result in a higher percentage of your earnings being taxed.

Special Allowance for Property Landlords 

There is a special allowance for property landlords and this allowance is applicable for landlords who let out the property through Airbnb, Booking.com etc.

If the gross rental income generated from your spare room does not exceed £7,500, Rent a Room Relief is automatically activated, leading to an exemption from taxation for the rental income. However, if you share the rental income with a partner this threshold is halved to £3,750.

If your rental income surpasses the threshold i.e. £7,500 or £3,750 in case of Joint ownership, you are required to complete a self assessment tax return and inform HMRC.

Tax Optimisation Strategies for Side Hustlers

In this section, we will suggest tax optimising strategies for side hustlers from understanding the allowances to setting up a limited company.

Income generated from side hustle is regarded as part of your overall income
  • Understand Your Allowances: Familiarise yourself with the personal allowance and basic rate tax band. Currently, the personal allowance is £12,570, and the basic rate tax band is £50,270. Earnings within these thresholds are subject to lower tax rates.
  • Claim Expenses: Keep detailed records of all allowable business expenses related to your side hustle. This may include equipment, supplies, travel, and a portion of home expenses if you work from home.

Learn if landlords qualify for the "Home Office Tax Deduction". Read now for insights!

  • Use the Trading Allowance: Take advantage of the trading allowance, which allows you to earn up to £1,000 tax-free from self-employment or casual income. This is particularly beneficial for those with small side hustles.
  • Consider Incorporation: Depending on your side hustle's scale and income level, consider whether it is tax-efficient to operate as a sole trader or to set up a limited company. A limited company structure may provide additional tax planning opportunities.
  • Use Allowances for Renting a Room: If you rent out a furnished room in your home through the Rent a Room scheme, you can earn up to £7,500 tax-free. This allowance is halved if you share the income with someone else.

Explore the "Rent a Room Relief Scheme" and its benefits. Read now for insightful details!

  • Contribute to Pensions: Consider contributing to a personal pension plan. Contributions are eligible for tax relief, which can reduce your overall taxable income.
  • Dividend Allowance: If you operate as a limited company and pay yourself dividends, take advantage of the dividend allowance. For tax year 2023-24, the dividend allowance is £1,000 and halved to £500 for tax year 2024-25. Dividends within this limit are tax-free.
  • Tax-Free Savings Accounts: Explore tax-efficient savings options, such as Individual Savings Accounts (ISAs). Interest and gains from ISAs are tax-free.
  • Claim Tax Reliefs:  Ensure you are claiming all applicable tax reliefs. For example, if you use your car for business purposes, you can claim mileage allowances.

Understanding "Mileage Allowance": Read Now for Expert Insights and Practical Guidance!

  • Keep Your Records Updated: Maintain accurate and up-to-date financial records. This not only helps you claim all eligible expenses but also facilitates the tax filing process.

The Role of Professional Tax Services

Professional tax services play a pivotal role in ensuring financial success and compliance for Side Hustlers.

  • Expert Guidance: Seeking the assistance of tax professionals can offer specialised guidance tailored to the specific requirements of individuals involved in side hustle.
  • Maximising Deductions: Tax professionals have the expertise to identify and maximise eligible deductions, ensuring side hustlers retain as much of their earnings as possible.
Professional tax services
  • Compliance and Risk Mitigation: Staying compliant with tax regulations is crucial to avoiding legal issues. Tax professionals can provide valuable insights into changing tax laws and ensure side hustlers navigate potential risks.

Conclusion

While embarking on a side hustle is an exciting venture, understanding and managing side hustle taxes is paramount for financial success.

By implementing tax optimisation strategies and seeking professional guidance, side hustlers can minimise tax burdens, maximise deductions, and pave the way for sustainable and profitable endeavours. 

As the sectors within side hustle continues to evolve, staying informed about tax implications will empower side hustlers to thrive in their entrepreneurial pursuits.

Need assistance with UK side hustle tax?

Contact us today for efficient and hassle-free assistance.

Sanjay Gautam
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