Now we’re in the midst of a cost-of-living crisis, you may be thinking about making a little extra cash on the side.
And why not? Whether it’s selling your homemade soy candles online, offering yoga classes in your local park, or working on freelance video animation projects at the weekends, side hustles can be a fantastic way to get creative and boost your income.
But do you have to pay tax on this additional money you’re making? Spoiler alert: it depends!
Don’t worry, we’ve got you covered. Whether you’re new to the side hustle game or a seasoned sole trader, we’ve got the lowdown on what you need to know on the tax front, while turning your skills into extra money. Let’s get stuck in.
- What is a side hustle?
- How much can I earn from a side hustle before tax?
- Do I have to pay tax on a side hustle selling things online?
- Calculating tax on a side hustle
- How tax deductions help lower your tax bill
- Hnry can help with all of this
What is a side hustle?
In a nutshell, a side hustle is something you do outside your main job to earn some extra cash.
For example:
- You work a full-time job as a primary school teacher. In your free time, you use scrap material to create beautiful, unique pet jumpers to sell online.
- You work part-time as a graphic designer. Outside of that, you help local non-profits with their social media marketing.
- You have a full-time job as a commercial real estate agent. In the evenings and at weekends, you offer tutoring to adults wanting to learn a new language. Merci!
These side hustles not only bring in extra money, but can also allow you to pursue interests and passions beyond your regular work. Nice, right?
How much can I earn from a side hustle before tax?
The tax office (HMRC) has set a tax-free trading allowance of £1,000, meaning any earnings up to this amount (outside your main job) are exempt from tax. Hooray! If your side hustle pulls in more than £1,000 within a tax year, you’ll need to pay tax on it.
Unlike your regular job, where taxes are automatically handled through PAYE, managing taxes for a side gig requires a bit more effort. To keep HMRC happy (read: to stay compliant with tax regulations), you’ll need to register as self-employed.
Your specific earnings will dictate how you pay side hustle tax. Starting in April 2026, if your earnings exceed £50,000 (with this figure decreasing to £30,000 from 2027), you’ll be required to use HMRC-approved software – like Hnry! – to file your annual tax return. For earnings below these amounts both now and in the future, you can continue filing your self-assessment tax return through the Government Gateway website.
Do I have to pay side hustle tax on things I sell online?
What if you sell stuff online, or rent your place out on Airbnb? Do you have to pay tax on those? Again, the answer is: it depends.
With so many people turning their hobbies into extra moolah and not declaring it as income, HMRC recently hired a shiny new £36 million task force aimed at keeping tabs on online sellers and gig workers. Huge online platforms including eBay, Uber, Amazon, and Airbnb, are now required to report what sellers earn. So, if you’re juggling a side gig selling vintage finds, or occasionally renting out your cozy pad, honesty is indeed the best policy.
Like we said earlier, the tax-free trading allowance is £1,000, and that includes money made through all the above examples. There is one exception however, and that’s renting a spare room (on Airbnb or otherwise). The government has extended the tax-free allowance to £7,500, as per its ‘Rent a Room Scheme’.
Here’s the thing though: whether you pay tax or not all comes down to whether HMRC considers you to be a ‘trader’ – someone who’s creating or buying stuff just to sell or resell it for a profit. So if you’re beavering away in your spare time sewing quirky quilts specifically to sell through your Etsy store, you may want to keep an eye on those new tax expectations.
But, if you’re using platforms like eBay to simply declutter your life and make a few quid, rest easy! These new rules, which kicked in on 1 January 2024, aren’t targeting the average person clearing out their garage, or the occasional chef doing a bit of catering for friends. HMRC is really targeting those side hustles aimed at turning a profit regularly, to make sure everyone’s paying their fair share of tax.
💡 To find out if you’d be considered a ‘trader’ and therefore need to pay tax on your side hustle, you can fill out this online government assessment form.
Oh, and if you’re worried about previous income that you may have needed to declare, we recommend you consult a tax professional (like us, Hnry!) or professional adviser.
How to calculate taxes on a side hustle
It’s important to remember that all your earnings – from both your main job and your side hustle – are part of your total income, along with money from rental property and interest from savings and other investments. This means you’ll be subject to progressive tax rates, where higher earnings and profits can push you into higher tax brackets.
Also, when tallying up your tax obligations, it’s not just income tax you’ll need to consider. There’s also:
- National Insurance contributions
If your profits are more than £12,570 a year, you have to pay Class 4 self-employed contributions. - VAT
You’ll need to register for VAT when you start making over £90,000 in self-employed income.
Tax deductions can lower your taxable income
Good news, side hustlers! When you register as a sole trader for your side gig and file your tax returns through the self-assessment system, you can claim business expenses as a tax deduction. Whew!
Whether it’s the cost of your craft materials, or the handy software subscriptions keeping your gig running smoothly, these expenses can help trim down your taxable income.
📖 Claiming eligible tax deductions can be tricky – HMRC are very specific about what they will and won’t accept. If you can join Hnry, we’ll manage your expenses for you.
To be honest though, you can just use Hnry
Hnry is an award winning app and tax service, designed specifically for sole traders. For just 1% + VAT of your self-employed income, capped at £650 a year, Hnry will calculate and pay all your taxes and whatnot for you, including:
- Income tax
- VAT
- National Insurance
- Student loan repayments
- Private pension contributions (optional)
Our app models your income throughout the year and predicts your effective tax rate based on what you earn. We only ever deduct what we estimate you’ll owe, meaning you won’t get behind (or ahead!) on tax payments. You also won’t have to set money aside yourself – in fact, you’ll barely have to think about taxes at all.
Better still, using the Hnry platform costs less than using a traditional accountant, and is entirely tax deductible.
If that sounds good to you, join Hnry today and never think about tax again!
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