Engaging in side hustles has become an increasingly popular way to supplement income and pursue passions. However, it’s essential to understand the tax obligations associated with various types of side activities. Here’s a breakdown of five common side hustles and their tax implications:
1. Buying or Making Things to Sell
If you’re purchasing items for resale or creating products to sell—whether through online platforms like eBay, Etsy, or at local markets—HM Revenue & Customs (HMRC) considers this as trading. In the UK, you can earn up to £1,000 per tax year from trading activities without paying tax, thanks to the Trading Allowance. Earnings exceeding this threshold require you to register for Self Assessment and report your income. It’s crucial to maintain accurate records of all sales and related expenses to ensure correct tax reporting.
2. Offering Services or Side Gigs
Providing services such as freelance writing, graphic design, tutoring, or participating in gig economy roles like ride-sharing and food delivery also falls under trading income. The same £1,000 Trading Allowance applies. If your gross income from these activities exceeds this amount, you must register for Self Assessment and declare your earnings. Remember to keep detailed records of all income and allowable expenses, which can include costs like travel, equipment, and marketing.
3. Working for Yourself in Multiple Jobs
Managing multiple self-employed roles, such as combining freelance consulting with part-time personal training, requires careful tracking of each income stream. While the Trading Allowance covers the first £1,000 of your total trading income, surpassing this necessitates Self Assessment registration. Accurate record-keeping for each job is vital to claim allowable expenses appropriately and ensure compliance with tax obligations.
4. Content Creation and Influencing
Earning money through content creation—such as blogging, vlogging, podcasting, or social media influencing—qualifies as trading income. Monetary gains from advertisements, sponsorships, affiliate marketing, or fan donations are taxable. If your total income from these activities exceeds the £1,000 Trading Allowance, you must register for Self Assessment. Given the potential for varied income sources, meticulous record-keeping is essential to track earnings and related expenses, like equipment costs and internet fees.
5. Renting Out Property
Income from renting out property, including holiday lets or spare rooms, has specific allowances:
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Rent a Room Scheme: If you rent out a furnished room in your primary residence, you can earn up to £7,500 per year tax-free. Earnings above this threshold must be reported to HMRC.
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Property Allowance: For other rental income, the first £1,000 is tax-free. If your income exceeds this, you must declare it and may deduct allowable expenses, such as maintenance and property management costs, to determine your taxable profit.It’s important to note that these allowances cannot be combined for the same income source. For instance, you cannot apply both the Rent a Room Scheme and the Property Allowance to the same rental income.
General Guidelines:
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Registration: If your income exceeds the respective allowances, register for Self Assessment by 5 October following the end of the tax year in which you earned the income.
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Record-Keeping: Maintain comprehensive records of all income and expenses related to your side hustles. This practice not only ensures accurate tax reporting but also aids in claiming allowable expenses to reduce taxable income.
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National Insurance Contributions (NICs): Depending on your profits, you may be liable for Class 2 and Class 4 NICs. For the 2024/25 tax year, Class 2 NICs are payable if profits exceed £12,570, while Class 4 NICs are due on profits over this threshold.
Understanding and adhering to these tax obligations is crucial to managing your side hustles effectively and avoiding potential penalties. For more advice, get in touch with us.