Side Hustle Tax UK: Top Tips for 2024

Whether you’ve already started making money from a side hustle or you’re still looking into side hustle ideas, it is important to get your head around side hustle tax in the UK. UK side hustle tax is a one-time payment that must be made by anyone who earns secondary income from a side hustle, second job, or other venture in the United Kingdom. In this article, we take a look at side hustle tax in the UK, when it’s payable, how to pay it, and how to reduce the amount that you pay.

Most side hustlers in the UK will have to pay tax on their earnings. Failure to pay could lead to fines or even prison time as a worst-case scenario. For some, earning extra money from a side hustle could mean moving into a higher tax bracket and paying more tax on your income overall. To help you navigate UK side hustle tax with confidence, here is everything you need to know.

UK Side Hustle Tax Guidelines: Do I Have To Pay Tax on My Side Hustle?

In the UK, you are required to pay tax on earnings from a side hustle if they exceed £1000 per year. This is because all UK residents have a yearly trading allowance of £1000, which covers any additional income that you make outside of your job.

The trading allowance covers any type of side job such as a side hustle, second job or small business venture. Any earnings under £1000 are not taxable in the UK. However, most successful side hustles will easily bring in more than £1000 per year. Brits are given a total tax-free trading allowance of £1000 per year, which means that you do not get a separate allowance for each side hustle that you start.

How much tax do I need to pay on my side hustle?

The amount of tax that you will need to pay on your side hustle is based on your net profits, which is the total amount of money that you earn from your job and any side income. In the UK, it is possible to earn a personal allowance of up to £12,570 per tax year without paying any tax. Any earnings higher than this are taxed accordingly.

If your total earnings (main job + side income) fall between £12,570 and £50,270, you will pay the lowest tax rate of 20% on the amount over £12,570.

If your total earnings fall between £50,270 and £125,140, you will pay the higher tax rate of 40% on earnings that are over £50,270. People who pay this tax rate only pay 20% on earnings below £50,270.

If your earnings exceed £125,140, you will need to pay the highest tax bracket of 45% on anything over £125,140.

It is so important to mention here that your personal tax-free allowance decreases by £1 for every £2 that you earn over £100,000 in the UK.

UK side income national insurance guidelines

If you earn anything over £12,570 in the UK, you must pay Class 2 or Class 4 National Insurance. Class 4 National Insurance is paid on earnings between £12,570 and £50,270. Class 2 National Insurance is payable on earnings over £50,270.

Class 4 National Insurance has a set rate of 9% and Class 2 National Insurance has a rate of 2%. National Insurance payments contribute towards the NHS, state pensions, and benefits.

How To Pay Tax on Your Side Hustle in The UK

Unlike a regular salary, side hustle tax is not deducted automatically in the UK. Instead, people who earn additional income must claim their earnings with HMRC.

UK side hustle tax is paid once every tax year through a self-assessment tax return. This is a system used by HM Revenue and Customs to collect income tax that is earned by people who are self-employed. The self-assessment tax return is a form that must be completed and returned by the end of each tax year.

To send a tax return, you will need to first register with HMRC. The process of filling in and sending a tax return can be complicated and it is important to track your earnings and expenses so that it can be filled in correctly.

Here’s how to send a self-assessment tax return in the UK.

Register with HMRC. The first step is to register as self employed or a sole trader.
Download SA100. Next, download the self-assessment tax return form SA100 and complete all of the required fields.
Send the return to HMRC. You must then send your tax return to HMRC by filing it through the online system. It is also possible to send a paper version of the form to HMRC by post.

Keeping records of your side hustle earnings and expenses for UK side hustle tax

To fill in the self-assessment tax return form, you will need to keep a clear record of your earnings and expenses. It is a good idea to create a spreadsheet to track your ingoing’s and outgoings each month. You should also keep a record of any other financial incidents such as refunds, unexpected costs and extra income.

If your side hustle grows into a small business, it may be a good idea to ask an accountant to track your finances and fill out your tax return. Accountants can ensure that your taxes are filed correctly to prevent you from getting into any hot water with HMRC.

Top Tips for Reducing Your UK Side Hustle Tax in 2024

It is illegal to conceal any taxable income from HMRC in the UK. However, it is possible to reduce the amount of tax that you pay by reducing your taxable income. You can do this by maximizing allowable tax deductions, making smart financial decisions, and understanding the UK tax system. Here are some top tips for reducing your UK side hustle taxable income in 2024.

1. Claim business expenses

Business expenses can be deducted from taxable income in the UK. This is because business expenses are not personal income and do not contribute towards your net income each year. If you register as self-employed with HMRC, it is possible to claim business expenses in your self-assessment tax return at the end of the financial year.

Business expenses cover any purchases that are made to support your side hustle or small business venture. This could include money spent on software, subscriptions, your work laptop, or even your commute to side gigs that aren’t remote.

Claiming business expenses is a good way to reduce your net income and decrease your taxable income in a way that is legal.

2. Use the UK home office deduction

If you work from home as part of your side hustle, you may be eligible for a home office deduction. This can cover a portion of your rent or mortgage interest, council tax, and utilities, which reduces your taxable income.

You can claim the home office deduction by using the self-assessment tax return forms at the end of each tax year. On the form, provide a list of total expenses or a breakdown of home office expenses.

3. Make Pension Contributions

Another way to reduce your taxable income in the UK is to contribute to pension schemes. Payments into a personal pension plan are eligible for tax relief at your marginal rate, effectively reducing your tax bill.

UK side hustle tax payers who pay the basic rate can get a 20% pension relief. Those who pay the higher tax rate can claim a 40% pension tax relief and additional payers can claim a 45% pension tax relief.

4. Use Tax-Free Allowances

The UK offers various tax-free allowances, such as the dividend allowance and the savings allowance. Utilize these allowances to minimize the tax you pay on investment income or dividends from your side hustle.

Important note: It is not possible to claim any tax allowances or expenses if you claim the £1000 trading allowance in the UK.

Side Hustle Tax UK - Conclusion

If you earn over £12,570, you must pay tax in the UK. For most people, this means paying taxes on the income that you get from your side hustle. Side hustle tax is paid by registering with HMRC and filing a self-assessment tax return. It is possible to claim a £1000 trading allowance to reduce your side hustle tax. Alternatively, you could claim business expenses, use deductions and claim tax allowances to reduce the amount that you pay.

It is important that you pay your taxes correctly and on time to avoid any fines or convictions. A good idea is to use a third-party accountant (or accounting software) to calculate your taxes and help you to file a yearly tax return.

FAQs

It is possible to earn £1000 from a side hustle before paying tax in the UK. If you do not have a primary source of income, it ispossible to earn up to £12,570 tax-free in the UK.
Yes, your side hustles will get taxed if your net income falls above £12,570 in the UK. It is possible to reduce your taxable income through allowances and expenses however, all side hustle income is eligible for taxation in the UK.
Yes, you will need to register as self-employed with HMRC and pay the relevant tax on your side hustle in the UK. Failure to correctly declare income could lead to fines.
You will need to pay tax in your first year of self-employment if you earn over £1000 in the UK. You submit a tax return by the 31st of January the year after you started your side hustle or business venture.