Introduction
Whether you're selling on Etsy, driving for Uber, freelancing alongside your job, or renting out a spare room, you need to understand the tax implications. This guide covers everything you need to know about taxing side income in the UK.
The Trading Allowance
What It Is
A £1,000 tax-free allowance for trading income (including side hustles).
How It Works
- If your side income is £1,000 or less: No need to report or pay tax
- If over £1,000: Choose to deduct the allowance OR claim actual expenses
Important Notes
- Applies to trading income only (not employment)
- One allowance per person (not per side hustle)
- Cannot combine with actual expenses
When to Register
You Must Register If
- Side income exceeds £1,000 in a tax year
- You want to claim losses
- You're required to file Self Assessment anyway
Registration Deadline
Register with HMRC by 5 October following the tax year.
For 2025/26 (April 2025 - April 2026): Register by 5 October 2026
Types of Side Income
Gig Economy
Examples: Uber, Deliveroo, TaskRabbit
- Usually self-employment
- Must register if over £1,000
- Can claim expenses (vehicle, phone, etc.)
Online Selling
Examples: eBay, Etsy, Depop
- Occasional selling of personal items: Usually not taxable
- Regular selling for profit: Trading income
- Consider your intent and frequency
Freelancing
Examples: Writing, design, consulting
- Self-employment income
- Register and file Self Assessment
- Claim business expenses
Rental Income
Spare room: Rent-a-Room relief (£7,500 tax-free) Property: Property allowance (£1,000) or actual expenses
What You Can Deduct
Common Side Hustle Expenses
- Equipment and tools
- Phone and internet (business portion)
- Travel costs (mileage or actual)
- Home office costs
- Professional fees
- Marketing and advertising
Keep Records
Even for small amounts, keep receipts and records for 5 years.
Combining with Employment
Two Tax Codes
If you have PAYE employment plus self-employment:
- Employment taxed through PAYE
- Self-employment through Self Assessment
- Both added together for tax bands
Example
- Employment: £35,000 (taxed via PAYE)
- Side hustle profit: £10,000
Total income: £45,000 - all taxed at appropriate bands.
National Insurance
Class 2 NI
If self-employment profits exceed £12,570:
- £3.45 per week
- Builds State Pension entitlement
Class 4 NI
On profits:
- 6% on £12,570 - £50,270
- 2% above £50,270
Already Employed?
You may owe both Class 1 (employment) and Class 2/4 (self-employment) NI, but there's a maximum annual contribution.
Platform Reporting
What's Changing
From 2024, platforms like eBay, Airbnb, Uber, etc. must report seller/earner income to HMRC.
What This Means
HMRC will know about your side income. Ensure you're reporting correctly.
Common Questions
Do I need to tell my employer?
Check your employment contract - some require disclosure of other work.
What if I make a loss?
Losses can be carried forward or (sometimes) offset against other income.
Is occasional work taxable?
If it's genuinely occasional and under £1,000, no. Regular activity is trading.
What about tips?
Tips are taxable income - include them in your totals.
Getting Started
Steps to Compliance
- Track all income and expenses
- Determine if you exceed £1,000
- Register for Self Assessment if needed
- File by 31 January following the tax year
- Pay any tax due
FAQs
Can I use the trading allowance if I have expenses?
Yes, but you choose one or the other - allowance OR expenses, not both.
What if I have multiple side hustles?
One £1,000 allowance covers all trading income combined.
Do I need an accountant?
Not required, but helpful if your side hustle grows significantly.
Conclusion
Side hustles are a great way to earn extra income, but don't forget the tax implications. The £1,000 trading allowance gives some breathing room for small earners, but above that, you'll need to register and file. Keep good records from day one - it makes tax time much easier.