Do You Need to Pay Tax on Your Side Hustle?
The short answer: it depends on how much you earn. The UK has a £1,000 trading allowance that lets you earn up to £1,000 from self-employment or casual trading without paying any tax or even telling HMRC.
If your side hustle income exceeds £1,000 in a tax year, you'll need to register for Self Assessment and file a tax return.
The £1,000 Trading Allowance
If your total trading income is £1,000 or less per tax year, it's completely tax-free. You don't need to register with HMRC or file a return.
If you earn more than £1,000, you can either deduct the £1,000 allowance instead of claiming actual expenses, or claim your actual expenses — whichever gives you a better result.
What Counts as Trading Income?
HMRC considers it trading income if you're regularly selling goods or services with the intention of making a profit. This includes:
- Freelancing — writing, design, web development, consulting
- Selling online — Etsy, eBay (if selling items you've made or bought to resell)
- Tutoring or coaching
- Delivery driving — Deliveroo, Uber Eats, etc.
- Dog walking, cleaning, or other services
- Content creation — YouTube, blogging, social media income
What Doesn't Count
- Selling personal belongings — clearing out your wardrobe on eBay or Vinted is generally not taxable (unless you're buying to resell)
- Gifts and one-off payments — not regular trading
- Gambling winnings — not subject to income tax
How to Register with HMRC
If your side hustle income exceeds £1,000, you need to:
- Register for Self Assessment on the HMRC website
- Register by 5 October after the end of the tax year in which you started trading
- File your tax return by 31 January (online) following the end of the tax year
- Pay any tax owed by 31 January
Don't Miss the Deadlines
Late registration and filing attract automatic penalties. A late tax return incurs an immediate £100 fine, and additional penalties accumulate for every month you delay. Set calendar reminders for 5 October (registration) and 31 January (filing and payment).
How Much Tax Will You Pay?
Your side hustle profits are added to your employment income to work out your total taxable income. The tax you pay depends on which income tax band your combined income falls into.
If Your Day Job Uses Your Personal Allowance
Most people with a full-time job have already used their £12,570 Personal Allowance. In this case, your side hustle profits are taxed from the first pound:
- 20% (basic rate) if your total income is under £50,270
- 40% (higher rate) on income between £50,270 and £125,140
- 45% (additional rate) on income above £125,140
Example: Side Hustle Tax on £5,000 Profit
Sarah earns £35,000 from her day job and makes £5,000 profit from freelance graphic design.
- Total income: £40,000 (all within the basic rate band)
- Income tax on side hustle: £5,000 x 20% = £1,000
- Class 4 NI: £5,000 x 6% = £300
- Class 2 NI: £179.40
- Total tax on side hustle: £1,479.40
- She keeps: £5,000 - £1,479.40 = £3,520.60
Example: Side Hustle Pushing Into Higher Rate
James earns £48,000 from his day job and makes £8,000 profit from tutoring.
- Total income: £56,000
- First £2,270 of side hustle taxed at 20% (up to £50,270): £454
- Remaining £5,730 taxed at 40%: £2,292
- Class 4 NI at 6%: £480
- Class 2 NI: £179.40
- Total tax on side hustle: £3,405.40
Expenses You Can Claim
You can deduct allowable business expenses from your side hustle income to reduce your taxable profit. Common expenses include:
Working From Home
- Simplified expenses: Claim a flat rate based on hours worked (£10/month for 25-50 hours, £18/month for 51-100 hours, £26/month for 101+ hours)
- Or calculate the actual proportion of household bills used for business
Equipment and Supplies
- Computer, phone, or tablet (proportion used for business)
- Software subscriptions
- Materials and supplies for your trade
- Stationery and printing
Travel
- Business mileage at 45p/mile (first 10,000 miles), then 25p/mile
- Public transport for business journeys
- Parking fees for business trips
Marketing and Professional Services
- Website hosting and domain names
- Advertising costs
- Professional memberships
- Accountancy fees
Trading Allowance vs Actual Expenses
If your income is between £1,000 and about £2,000, you have a choice:
| Method | How It Works | Best For |
|---|---|---|
| Trading Allowance | Deduct £1,000 flat from your income | Low expenses, simple side hustles |
| Actual Expenses | Deduct your real business costs | Higher expenses, equipment-heavy work |
You can't use both — pick whichever reduces your taxable profit more.
The Rent-a-Room Scheme
If your side hustle involves renting out a furnished room in your home (including through Airbnb), the Rent a Room Scheme gives you a separate £7,500 tax-free allowance. This is completely separate from the £1,000 trading allowance.
- Earn up to £7,500 per year from letting a furnished room tax-free
- No need to report to HMRC if you stay under the threshold
- The room must be in your main home
Record Keeping
Even for a small side hustle, keep records of:
- All income received (invoices, payment confirmations)
- All expenses with receipts
- Bank statements showing business transactions
- Mileage logs if claiming travel
HMRC requires you to keep records for at least 5 years after the 31 January filing deadline. A simple spreadsheet tracking income and expenses each month is usually enough.
Common Mistakes to Avoid
- Not registering at all — HMRC receives data from platforms like eBay, Airbnb, and Uber. They will find out
- Mixing personal and business finances — open a separate bank account for your side hustle
- Forgetting about National Insurance — you'll owe Class 2 and Class 4 NI on top of income tax
- Not setting money aside for tax — put 25-30% of your profits into a savings account for your tax bill
- Missing legitimate expenses — keep receipts for everything business-related
The Bottom Line
A side hustle can be a great way to boost your income, and the tax system is actually quite generous for small earners with the £1,000 trading allowance. The key is to understand your obligations, register on time if you need to, and keep good records throughout the year.
If your side hustle grows beyond a few thousand pounds, consider speaking to an accountant — they'll often save you more in tax than they cost in fees.
Use our income tax calculator to estimate your total tax bill including side hustle income, or check our allowable expenses guide for more on what you can claim.