Do I need to pay tax on my side hustle?

Background 

Something that has become more common in recent time is the need to earn some extra money to cover the rising cost of living.  Whilst some choose to get a second job part time to top up their income, another way is to have a side hustle.

What is a side hustle?

A side hustle is something that will supplement your income and is generally flexible around your main role.  It will often be in an area in which you are passionate about.

This may be making use of a hobby, such as crochet or sewing where you can utilise your creative skills to make some extra money.  With so many online platforms these days, it is easy to be able to access the marketplace to sell your wares.

In January of this year, there were changes put in place which mean that HMRC are able to demand the data of online sellers on sales platforms and holiday letting websites in the hope of clamping down on sellers who are avoiding paying tax on their side hustles.

What tax do I need to pay on my side hustle?

If you are trading to make a profit, this profit is liable to tax.  Currently you can take up to £1,000 in turnover annually before you need to register for self assessment and complete a tax return.  The £1,000 of income is covered by the Trading Allowance, which means that you can take up to £1,000 in sales revenue in a tax year without having to report this to HMRC. 

If you rent out a property (which is not your main residence) you also have a £1,000 Property Allowance each tax year, which is in addition to the trading allowance.

Turnover is not to be mixed up with profit.  Turnover is the sales revenue and the profit is the sales revenue less the trading expenses incurred.  If your turnover is over £1,000, you can still use the trading allowance to offset against this, especially if your trading expenses are less than £1,000.

My turnover is over £1,000 – what do I need to do?

If your side hustle turnover exceeded £1,000 in the tax year you will need to register for self assessment.  The deadline to register is 5 October in the tax year following the tax year in which the threshold was breached.

We can assist with the registration process for self assessment. You can reach out to us by booking a discovery call or send us an email:  hello@sphereaccountants.co.uk