With the rising cost of living, many are looking for ways to diversify their income to afford a family holiday or pay their bills.
This may mean working for multiple employers or developing a side hustle to supplement full or part-time employment.
From January 2025, with HMRC is cracking down on non-payment of tax for side hustles, with online marketplaces including Vinted, eBay, Etsy and Air BnB are legally obliged to share sales data for users who earn more than £1,700 or who completed more than 30 transactions last year.
The aim is to help HMRC identify those who may need to pay tax from their online transactions.
Are you worried about the Etsy, eBay, Vinted, etc. sales tax – I hope I can put your mind at rest.
Please share with anyone this impacts
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— Martin Lewis (@MartinSLewis) January 12, 2024
Tom Biggs, Partner at Wellers, the small business accountants, says: “It isn’t uncommon for people to have more than one income stream these days. But with that entrepreneurial spirit comes the crucial question of ‘do I need to pay tax on my side hustle income?’.
“The answer is… it depends.”
There are two questions to ask yourself which will help the answer become clearer:
How much are you earning from your side hustle?
How much you’re earning from supplementary revenue streams will play a big role in whether you owe tax, and how much.
“If your side hustle income exceeds £1,000 in any given tax year, then you must declare it to HMRC through a self-assessment tax return,” says Tom.
“But, if your income is less than £1,000, you may have nothing to worry about.”
What’s the difference between income and profit?
The other thing to consider is profit. The self-assessment tax return process involves calculating profit (income minus expenses) and potentially paying tax on that amount.
But, if you aren’t making a profit, then there may be no tax owed (although you will still need to declare the income if it exceeds £1,000).
“It quite often boils down to what your side hustle is, as some are more profitable than others,” says Tom.
“For example, if you’re selling unwanted clothes or furniture through sites like Vinted, eBay, or even Facebook marketplace, more likely than not you will be selling those items for less than they were originally bought for. In this case, probably aren’t making a profit and so are unlikely to owe any tax.
“However, if your side hustle is something like tutoring, dog walking, cleaning, drop shipping, or taking online surveys, then you could be making a profit, and you’ll likely owe tax on any supplementary income over £1,000.
“The only time this won’t be the case is if the income from your main job plus the income from your side hustle is below the Income Tax Personal Allowance.”
Currently, this is £12,570.
What happens if my side hustle might pushes me into a higher-rate or additional-rate tax bracket?
Sometimes a profitable side hustle can tip you over into a higher tax band.
“You need to weigh up whether the side hustle is worth pursuing if you’re going to end up paying additional tax,” says Tom.
“Alongside tax, there is also national insurance (NICs) that will need to be factored in and paid for, as well as things like the high-income Child Benefit charge.”
When do I need to register with HMRC?
“If you are committed to a side hustle, rather than it being a one-off or a ‘hobby’, registering as self-employed alongside your main job will simplify the tax reporting process,” says Tom.
“You will then be both employed and self-employed.”
This will help ensure you pay the correct amount and avoid any fines or penalties for not declaring the right amount of income and tax.
Similarly, it may be worth setting up a separate bank account for a side hustle.
“Doing so makes it significantly easier to track outgoings and incomings to calculate profit,” explains Tom.
“It also means personal spending doesn’t get mingled in with your side hustle cash flow which can confuse the process and lead to mistakes.
“Finally, if you’re unsure about anything, do seek professional advice. An accountant will be able to advise you on your specific set of circumstances.
“They can help you determine your tax obligations, claim any tax deductions you may be eligible for, and understand the deadlines, regulations, and process so you avoid costly errors.”
