Do I need to file a tax return if I have a side hustle?

Side hustles have become very popular. According to some sources, more than a third of UK adults already have a side hustle and that could soon increase to half. A side hustle, of course, is a way to earn cash in addition to your main source of income, whether you’re employed or self-employed.

The explosion in side-hustler numbers hasn’t escaped HMRC’s attention. Last year, the UK tax authority warned that it had told popular platforms to reveal side-hustle income so that it could go after unpaid tax. HMRC had in its sights those making extra dough from eBay, Amazon, Etsy, Airbnb, Fiverr, Uber, Uber Eats and Deliveroo, as well as those using platforms Upwork and Fiverr to earn additional money by freelancing.

Selling personal possessions versus side hustle income

If you’re occasionally selling personal possessions via an online marketplace, perhaps old vinyl records or football programmes on eBay, clothes on Vinted or other unwanted things from your loft or garage at car boot sales, no tax is payable. You’re just selling off your personal possessions.

However, if you’re regularly buying things to sell on for a profit or you’re buying materials to make things (eg greetings cards) to sell for a profit, you’re trading and tax may be payable. The same is true if you’re selling your professional services regularly, where income can also be taxable over certain thresholds.

When is side hustle income subject to tax?

If you are trading, thanks to your “Trading Allowance” you can earn up to £1,000 a year of side-hustle gross income (ie your total sales) tax-free, because HMRC views this as “casual or miscellaneous” income. You don’t have to register or fill in a tax return, you can relax.

But once your side-hustle trading gross income goes over the £1,000 Trading Allowance threshold, Income Tax can be payable, depending upon how much taxable income you earn from other sources. If you earn taxable income from more than one side hustle, the £1,000 threshold applies to your total taxable side-hustle income.

Registering to pay tax on your side hustle income

Most people earning taxable side-hustle income pay tax via Self Assessment, after registering as a “sole trader” (rather than setting up a limited company).

If you haven’t done this before, you must register before 5 October following the end of the tax year in which you earned taxable side-hustle income. The UK tax year runs from 6 April until the following 5 April. If you don’t register in time, you can be fined. 

Once registered, each year you must complete and file a Self Assessment tax return, as well as supplementary tax return pages SA103 to report your side-hustle income, plus any tax expenses and allowances you wish to claim. Depending on your other sources of taxable income, there can be other supplementary pages to complete. You must file your Self Assessment tax return before the online-filing deadline of midnight on 31 January, otherwise there’s an immediate £100 fine.

How much tax will I pay on my side-hustle income?

Sole traders pay tax on their net profits, which is their sales minus their costs. HMRC allows you to deduct some costs (“allowable expenses”) from your gross sales/income, which reduces your tax bill. Other other tax allowances and reliefs may also be claimable.

The Income Tax band into which all of your total taxable income falls (not just your trading income) determines how much tax you pay. As well as your £1,000 Trading Allowance, you don’t pay Income Tax on your first £12,570 of gross taxable income, because this is your tax-free Personal Allowance.

Income Tax bands and rates are slightly different in Scotland.

What about Airbnb or other property rental income?

If you earn less than £1,000 gross rental income via Airbnb, you don’t have to report it to HMRC. Thanks to the Property Allowance, it’s tax-free income. As soon as you earn more than £1,000, it’s reportable taxable income.

• Contact HMRC if your annual rental income is between £1,000 and £2,500.
• You must complete and file a Self Assessment tax return and supplementary pages SA105 if your annual rental income is more than £2,500 after allowable expenses or £10,000 before allowable expenses.

What if I don’t pay tax on my side-hustle income?

Reportedly, digital platforms will only pass on data to HMRC automatically if a seller is selling 30 or more items a year or they have total earnings over €2,000 (about £1,700). But even if your taxable sales are just over £1,000, registering for Self Assessment and paying any tax due is recommended.

If you know that tax is payable on your side-hustle income and you try to conceal it from HMRC, you’re guilty of tax evasion, a type of fraud and a criminal offence, of course. The financial penalties for tax evasion can be severe and in the worst cases it can lead to a prison sentence. Trying to hustle HMRC is not advised.

GoSimpleTax makes reporting taxable side-hustle income via Self Assessment easier, quicker and cheaper than paying an accountant to do it. Thousands of people already use GoSimpleTax to report their taxable income to HMRC. GoSimpleTax can ensure that all necessary parts of your tax return are completed without any basic mistakes, giving you peace of mind. Enjoy a FREE, no obligation trial to find out how GoSimpleTax makes completing tax returns so much simpler. 

Blog content is for information purposes and over time may become outdated, although we do strive to keep it current. It's written to help you understand your Tax's and is not to be relied upon as professional accounting, tax and legal advice due to differences in everyone's circumstances. For additional help please contact our support team or HMRC.