How To Pay Tax On A Side Hustle

Side hustles have never been more popular. An estimated 22.8 million Brits are using a side hustle to top up their income, which is earning them an average of £10,800 a year - not bad at all, especially on top of a regular job.

Source: Finder’s Side Hustle Statistics

But as we’ve all heard before, the only two certainties in life are death and taxes. Hopefully, the former won’t strike as a result of your side hustle (unless you have a side job as a stuntman), but all that extra income does come with the unfortunate downside of tax implications.

If you’re just starting out with a side hustle, it may be the last thing you want to think about, but it’s important to keep the question of tax in mind, to avoid being caught by surprise at the worst possible moment.

Small disclaimer: we’re not financial advisors, and if you need specialised, professional advice, please speak to a professional financial advisor who can give you the guidance you need.

How Are Side Hustles Taxed?

Although a side hustle often feels very different from a regular job, HMRC don’t differentiate much between earnings from your main job and from your side hustle.

There are two main ways you will have to pay tax, depending on the kind of side hustle you take up.

PAYE

If you end up taking on a ‘normal’ job, perhaps a part time one, as your side hustle, with a company or organisation as your employer, you’ll be registered for PAYE tax, which makes everything much easier. Your total income across both your regular job and your extra side hustle job will be worked out automatically by HMRC, and the required tax taken straight off your pay.

Self Assessment

It’s much more common for a side hustle to come in the form of self-employment, for which you have to submit your own self-assessed tax return (you’ve probably seen a fair few adverts on TV for this from the tax office - ‘tax doesn’t have to be taxing!’). It’s your responsibility to report your earnings to HMRC accurately, and then to make payment for any taxes you owe.

How Much Can I Earn Before Paying Tax?

HMRC are quite understanding about how side hustles work. They’re aware that lots of people who attempt a side hustle or other business venture may not get very far at all, so they’ve instituted a threshold of £1000, and you won’t have to pay any tax on your side hustle until you hit it. Do bear in mind that this applies across any additional income you make - so you can’t start ten different side hustles, make £150 in all of them, and get out of paying tax on your earnings.

This means that you can make small amounts from your side hustle without having to pay any tax at all, or even submitting a tax return. So if your intended side hustle doesn’t turn out to be a success, at least you won’t have to think about tax on the couple of hundred pounds you might have made. And if it is a success, and you get over that £1000 threshold - well, a bit of tax is probably a worthwhile price to pay.

If you do have a regular job alongside your side hustle, it’s important to remember that your personal tax allowance applies to both sources of income combined. Your personal allowance of £12,750 will be applied first to your main job, which means that all your income from your side hustle will be taxed at the applicable rate (20% on income between £12,750 and £50,270 a year).

Do I Have To Pay Someone To Do My Tax Return?

You really don’t! The government’s self-assessment form is designed to be something an individual can complete without any kind of accounting experience. Especially for a fledgling side hustle, it’s unlikely that your tax return will end up being too complicated for you to handle on your own.

There are plenty of companies that offer services to help with tax returns, though, as well as ordinary accountants, so if the financial side of doing business really isn’t your thing, you can get a professional to handle it all. If you manage to be wildly successful with your side hustle, you may well decide that it’s worth paying somebody else to take care of tax on your behalf.

When Do I Have To Complete My Tax Return?

You probably already know that the tax year runs from April to April - specifically from the 6th April to the 5th April every year. For each tax year, you then have until January 31st of the following year to submit your tax return.

So, for example, for any money you make in the tax year running from April 2024 to April 2025, you’ll have until January 31st 2026 to submit your tax return. You can sign up for a self-assessment account in advance, and once you’ve done so HMRC will make very sure that you can’t forget about it - as soon as the tax year ends, you’ll be the lucky recipient of relentless email reminders to submit your tax return, regardless of whether you’ve already done it.

When Do I Have To Pay Any Tax?

Payment of any tax you owe is also due by the 31st January following the end of the tax year in question.

It’s therefore a good idea to submit your tax return well in advance of the deadline, especially if you aren’t entirely sure of how much tax you’ll have to pay, so that you don’t immediately have to make payment as soon as your return’s been submitted.

If you don’t make the deadline, HMRC can impose additional fines - £100 if your tax return is submitted up to 3 months late, or more if it’s later still, or if the payment itself is late.

All in all, it’s definitely best to make sure you get your return submitted promptly and to set aside a portion of your earnings throughout the year, so that you can be confident you’ll be able to afford to pay your tax bill when it comes.

Isn’t It Difficult To Complete A Tax Return?

Well, the self-assessment form isn’t the most straightforward thing in the world. There are quite a number of sections that are completely irrelevant for the majority of people, which can be quite confusing the first time you encounter them.

The form does include explanatory information for each section, though, and if that isn’t enough, there are plenty of dedicated guides available online to take you through it all. And if you happen to know anyone who’s self-employed, see if they wouldn’t mind helping you with your first tax return - having an experienced hand beside you can do a lot to demystify and simplify the whole process.

As with anything in life, practice makes perfect, so the more tax returns you complete, the easier you’ll find them. And if they really turn out not to be your thing, you always have the option of paying a company or accountant to take care of them for you.

What About Expenses?

Yes, you do get to account for your expenses as part of your tax return. Any costs relating to your side hustle can be deducted from your earnings, reducing the amount you have to pay tax on.

You can find a full list of allowable expenses on the GOV.uk website, but we’ll provide a basic rundown of the most common claimable expenses for side hustles below:

• Office costs - even for a home office, items of stationery or the bill for your work phone can be deducted from your earnings

• Travel costs - including any fuel that relates to business travel, train tickets, overnight accommodation etc.

• Professional subscriptions - such as software used for your side hustle, or trade union membership fees

• Costs of premises - although you probably won’t have a dedicated premises for your side hustle, you can claim a percentage of the costs for your home, including rent/mortgage interest and utilities, if you use your home as your office

These expenses can make a significant difference to the amount of tax you have to pay, so it’s well worth taking the time to check on all the possible claimable expenses for your side hustle.

What’s The ‘Side Hustle Tax’?

You might have heard about a ‘side hustle tax’ in the news earlier this year - which sounds a bit worrying. Has there been an extra tax imposed just on side hustles?

In short, no, there hasn’t. What’s often been referred to as the ‘side hustle tax’ is in fact just a change in reporting requirements for some companies, whose users often include people with side hustles.

Reselling companies and marketplaces, such as eBay and Vinted, are now required to report the profits of sellers on their platforms to the government. Other online platforms through which people can offer services, such as AirBNB, are also subject to these requirements.

This makes it much harder to get away without paying tax if you have a side hustle through one of those platforms, but it has no effect on the requirement for you to pay tax as an individual, or how much tax you have to pay.

Can I Get Away Without Paying?

It might have occurred to you that - if your side hustle doesn’t involve one of those aforementioned third party platforms - the government really has no way of knowing how much you’re making from your side hustle.

That may be the case - although if you’re accepting payment by any other means than cash, you will be leaving a paper trail - but it’s really not worth the risk. If you have any success from your side hustle, it’ll start to be much, much harder to stay under the radar. You might even find yourself artificially restricting your earnings, because you’re worried that your sketchy finances from when you were first starting out might attract too much attention if your side hustle gets too big.

HMRC are doing their best to crack down on undeclared side income, so it’s far better to do things properly, submit a tax return, and make your payments on time. If not, you might find yourself on the government’s list of tax fraudsters - though you’d have to work pretty hard to outdo the worst offender, who currently owes over £4.5 million in tax!

Source: GOV.uk’s current list of deliberate tax defaulters

Are There Any Tax-Free Side Hustles?

As it happens, there is one side hustle that’s completely tax free - Matched Betting! Because Matched Betting is classed under gambling for tax purposes - although it isn’t really gambling at all - you don’t have to pay any tax at all on any profits you make from Matched Betting.

Matched Betting involves taking advantage of the offers available from bookies to make guaranteed profits, and can be an extremely lucrative side hustle. On average, matched bettors can expect to make between £300 and £1000 a month Matched Betting, although some people even manage to make it their full time living - all without any tax on your earnings.

If that sounds promising, but you’re not sure about taking it up as a side hustle, why not find out more about Matched Betting first? Or if you’re a person who likes to learn through hands-on experience, you could always sign up for our free trial and give it a go.

Summary

In most cases, having to pay tax is an unfortunate but inevitable consequence of a successful side hustle. If you make over £1000 a year from your side hustle, you’ll need to pay tax on your earnings, usually after submitting a self-assessment tax return.

A tax return isn’t as intimidating as it sounds, and you’ll soon get used to completing them - but to avoid any tax obligations altogether, Matched Betting is your best bet.