Side Hustle Tax UK: Tax Guide for Extra Income

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.

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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

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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

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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

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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.

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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.

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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.

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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.

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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.

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Getting Started

Steps to Compliance

1. Track all income and expenses
2. Determine if you exceed £1,000
3. Register for Self Assessment if needed
4. File by 31 January following the tax year
5. Pay any tax due

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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.

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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.