Side Hustles and Income Tax
With living costs rising, the need for flexible working or simply a creative outlet, it’s not a huge surprise that 1 in 4* UK residents are starting up a side hustle.
From selling clothes on Vinted, creating online content, to renting out your driveway – side hustles are generating up to 20%** of overall income for some.
“A side hustle is a job or paid activity that you do in addition to your main job.”
So at what point do you need to declare your additional income?
Trading Allowance
Every adult in the UK has a ‘trading allowance’. So the first £1,000 of additional income, per year, outside of your regular employment is tax-free. Any earnings over that amount are taxable, with some exceptions.
Since 1st January 2024, online marketplaces such as Etsy, Vinted, Ebay and TikTok, are required to report sellers’ income to the HMRC.
It’s unlikely that you will go over the trading allowance just from selling some of your unwanted clothes or belongings. But if you are purposely buying and selling to make a profit, you will likely be considered a ‘trader’, and therefore need to pay tax on your profits.
Declaring Income
If you are earning over £1,000 from your side business, you will need to register with HMRC as either a sole trader or as a limited company.
Find out how to register to pay tax through a self-assessment tax return.
If you don’t declare extra income that is over your trading allowance, the HMRC may issue you with a penalty on which they can charge interest.
Expenses
Keep track of your business expenses as you will need to declare them on your tax return. You can claim certain expenses back from HMRC.
Check here for allowable expenses.
Exemptions
- If you’re employed, your employer automatically deducts tax through PAYE
- Income from tax-exempt accounts, like ISAs
- Dividends under your dividend allowance
- Premium bond or National Lottery wins
- Rent from a lodger that’s below the Rent A Room Scheme limit
Further reading
*Based on research from Henley Business School
**Based on research from Henley Business School
Get in touch
Get in touch with us today to speak to one of our accountants for further advice or support with your self-assessment tax return.
Call us on 0330 088 1701 or email us at hello@dhbs.uk, where we will be happy to assist you.
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