How to keep track of your side hustle income and expenses

Some believe it’s 15%, others say it’s 25% or even as high as 33%. Whatever the truth, a significant percentage of people in the UK now have “side hustles” (also called “side gigs” or side businesses).

Many start a side hustle to make ends meet, while others do it to continue to enjoy a better life. Technology has made it much easier and cheaper, while many side hustlers enjoy the buzz of running a successful additional cash-spinner, so much so that some pack in their jobs to run their side hustle full time.

HMRC crackdown on side hustle tax evasion

Many earn side-hustle income from eBay, TikTok, Airbnb, Vinted, Facebook, YouTube, Instagram, Amazon, Fiverr, Uber,  Deliveroo, etc. In pursuit of unpaid tax, HMRC (the UK tax authority) has instructed some platforms to reveal user income, with HMRC planning to invest a reported £36.69m and commit 24 full-time staff.

It’s not all online platforms, of course, people earn side-hustle income from selling home-made cakes, jam or honey, second-hand records or handmade greetings cards, teaching maths or piano, journalism, playing in a tribute band, painting, antiques, dog-walking and cat-sitting. Side hustlers belong to a broad church. So, if you’re a side hustler or thinking about becoming one – what do you need to know about keeping records and paying tax?  

What tax records must side hustle businesses keep?

As a sole trader, you must maintain accurate, up-to-date records of your sales and business costs/expenses, with precise figures and dates shown, because this enables you to reliably complete your annual Self Assessment tax return, evidence the figures you report and pay the right amount of tax.

HMRC can fine you if your records are not accurate, complete and legible. You can also be asked to provide proof of purchases you claim as tax expenses. Claiming bogus expenses and deliberately underreporting sales to pay less tax can both lead to a substantial HMRC fine. If you knowingly avoid paying tax altogether, you could face having to pay a penalty, as well as all of the backdated tax you owe, plus interest.

Side hustle financial record-keeping options

Overwhelmingly, people running their own business (including side hustles) now maintain digital accounting records. If you’re good with spreadsheets, you could create your own for free using Google Sheets or another option.

Using bookkeeping software is a much better option, especially as it only costs about a tenner a month, which you can claim as an allowable tax expense. You can link up your credit card or bank account so that sales and cost transactions are automatically recorded. Using accounting software can really help you to better organise your business finances and remain in control.

Bookkeeping software comes with pre-set-out features and pages, while your records can be accessed online wherever you are and shared with others (such as an accountant). Data is stored safely online and key figures are easy to find when filling in your tax returns. Moreover, accounting software can be linked to Self Assessment tax-return filing software, which makes the process much quicker and cheaper for you, with potentially expensive mistakes much less likely.

If your side hustle involves income from eBay, TikTok, Airbnb, Vinted, Facebook, YouTube, etc, user dashboards conveniently provide an overview/breakdown of your sales – and commissions that you pay, which are expenses – with amounts and dates, which you can use to update your side-hustle business financial records. Postage and packaging are just two tax expenses among many that sellers can claim.

Top tip! Set aside time to fully update your side-hustle financial records, could be daily, weekly, fortnightly or monthly – depends how many sales you make. Taking a “little and often” approach can ensure that updating your side-hustle financial records is more manageable, so you’re less likely to dislike it and try to avoid it, which isn’t advised.     

Reporting and paying tax on side hustle income

• Your first £1,000 of side-hustle gross income (ie total sales) is tax-free, because it’s considered “casual income”. This is called your trading allowance. However, you cannot claim it if you claim any tax expenses, so you’ll have to work out which is the most tax-efficient option for you. And once your gross side-hustle income goes over £1,000, it can be taxable, determined by how much total taxable income you earn.
• To report taxable side-hustle income so you can pay any tax due, you must register for Self Assessment, which is the system HMRC uses to collect tax. If you haven’t registered previously, you must do so before 5 October in your side-business’s second tax year (the UK tax year runs from 6 April until the following 5 April). You will be fined if you don’t. After registering, you’ll become a sole trader.
• Each year you report your taxable side-hustle income to HMRC via a Self Assessment tax return (the SA100 form) plus supplementary page SA103, which provides summaries of your taxable trade income and any allowable tax expenses you wish to claim. Once you submit your return, HMRC will tell you how much tax you owe.
• Tax payable on your side-hustle income is determined by the Income Tax band into which your total taxable income falls. You’ll pay 20% on £12,571-£50,270; 40% on £50,271-£125,140; and 45% on total taxable income above £125,140 (bands are rates are different in Scotland). Class 4 National Insurance contributions can also be payable on side-hustle income.
• In addition to your trading allowance, no Income Tax is payable on your first £12,570 of total taxable income, because this is your tax-free personal allowance. You can also claim £1,000 property allowance, if you earn money from renting out land or property, but if you claim tax expenses, you cannot claim the property allowance.

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.