Do I Need to Pay Tax on My Side Hustle?

If you have got a little something going on outside your main job — whether it is selling handmade candles, walking dogs at weekends, or picking up freelance design work — you are not alone. Millions of people across the UK have some form of side hustle, and it is a brilliant way to top up your income, test a business idea, or simply do more of the thing you love.

But here is the question that trips up almost everyone sooner or later: do I actually need to pay tax on this?

The short answer is: it depends on how much you earn, what you are doing, and whether you are already employed. The good news is that the rules are actually fairly straightforward once you know what to look for. Let us walk through the whole thing, step by step.

The Trading Allowance — Your First £1,000

The single most important number for side hustlers in the UK is £1,000. That is the trading allowance, and it is your best friend when you are just getting started.

If your total income from self-employment or casual trading is £1,000 or less in a tax year (running from 6 April to 5 April the following year), you do not need to tell HMRC about it at all. No registration, no tax return, no fuss.

This covers all sorts of activity — selling things online, offering a service, renting out equipment, tutoring, and more. As long as it counts as trading income and the total stays under £1,000, you are in the clear.

A few things to note

• The £1,000 figure is based on your gross income (total sales), not your profit. So if you sold £1,200 worth of goods but only made £400 profit, you have still gone over the threshold.
• The trading allowance is separate from the property allowance (also £1,000), which covers things like renting out your driveway or a room.
• You cannot claim the trading allowance and deduct expenses — it is one or the other.

For a deeper dive into where the thresholds sit, have a look at our guide on how much you can earn before registering as self-employed.

When You Need to Register With HMRC

Once your side hustle income goes above £1,000 in a tax year, you need to register as self-employed with HMRC. This applies even if you are already employed full-time and paying tax through PAYE.

Registering is free and fairly painless — you can do it online through the Government Gateway. You will need to register by 5 October following the end of the tax year in which you started trading. So if you started earning over £1,000 in June 2025, you would need to register by 5 October 2026.

Once registered, you will receive a Unique Taxpayer Reference (UTR) number, and you will need to file a Self Assessment tax return each year. If you have never done one before, our first-time Self Assessment guide walks you through the whole process.

What counts as self-employment?

HMRC considers you self-employed if you are running a trade or business on your own account. That could be anything from dog walking to web development. The key factors are:

• You decide when, where, and how you work
• You provide your own tools and equipment
• You can hire someone else to do the work for you
• You are responsible for the success or failure of the work
• You invoice for your services rather than receiving a salary

If you are genuinely just selling a few unwanted personal items on eBay or at a car boot sale, that is not self-employment — it is just clearing out your attic. But if you are regularly buying items to resell at a profit, that crosses the line into trading. For more on that distinction, see our article on eBay selling — hobby vs business.

How Much Tax Will You Pay?

Here is where it helps to understand the UK income tax bands for the 2025/26 tax year:

• Personal Allowance: £12,570 — you pay no income tax on this amount
• Basic rate (20%): On income from £12,571 to £50,270
• Higher rate (40%): On income from £50,271 to £125,140
• Additional rate (45%): On income above £125,140

The crucial thing to understand is that your side hustle income is added on top of your employment income. So if you are already earning £30,000 from your day job, your personal allowance is already used up. Every pound of side hustle profit is then taxed at 20% (or more, if your combined income pushes you into the higher rate band).

National Insurance

On top of income tax, you will also pay National Insurance contributions on your self-employed earnings:

• Class 2 NI: £3.45 per week (if profits are above £12,570)
• Class 4 NI: 6% on profits between £12,570 and £50,270, and 2% on profits above that

These are collected through your Self Assessment tax return, so there is no separate process to worry about.

What Expenses Can You Claim?

One of the perks of being registered as self-employed is that you can deduct legitimate business expenses from your income before calculating tax. This can make a significant difference to your bill.

Common expenses for side hustlers include:

• Materials and stock — anything you buy to make or resell products
• Equipment — a laptop, camera, tools, or other items used for your side hustle
• Software and subscriptions — including bookkeeping tools like Accounted, website hosting, or design software
• Travel — mileage to meet clients or deliver goods (at 45p per mile for the first 10,000 miles)
• Marketing — business cards, flyers, social media advertising
• Phone and internet — the business-use proportion of your bills
• Home office — a proportion of your household costs if you work from home

You need to keep records of all your income and expenses. HMRC can ask to see them at any time, and you are required to keep them for at least five years after the 31 January submission deadline for that tax year.

Trading allowance vs expenses

If your expenses are minimal, it might actually be simpler to use the £1,000 trading allowance instead. You do not need to keep detailed records, and you just deduct £1,000 from your gross income. But if your expenses are higher than £1,000, you will save more by claiming actual expenses instead. You cannot do both.

Common Side Hustle Scenarios

Let us look at a few real-world examples to make this more concrete.

Scenario 1: Selling crafts on Etsy

You sell handmade jewellery on Etsy and make £3,500 in sales over the tax year. Your materials, postage, and Etsy fees total £1,800. Your taxable profit is £1,700. You need to register as self-employed, file a Self Assessment, and pay tax on that £1,700 (which will be added to your employment income).

Scenario 2: Weekend tutoring

You tutor GCSE maths students on Saturday mornings and earn £800 over the year. This is under the £1,000 trading allowance, so you do not need to do anything. No registration, no return.

Scenario 3: Freelance copywriting

You pick up freelance writing jobs alongside your full-time marketing role. You earn £12,000 from freelancing. After deducting expenses of £2,000, your profit is £10,000. This is added to your employed salary for tax purposes, and you will owe income tax and National Insurance on it. For more on this situation, check out our guide to freelancing alongside a full-time job.

Staying Organised From Day One

The single biggest piece of advice for anyone running a side hustle is to keep on top of your records from the start. It is much easier to log a sale or snap a photo of a receipt in the moment than it is to dig through bank statements in January trying to piece together what happened nine months ago.

Here are a few practical tips:

• Separate your finances. Open a dedicated bank account for your side hustle income and expenses. This makes everything much easier to track.
• Record income as it comes in. Do not wait until the end of the year. A quick note of each sale or payment keeps you in control.
• Save receipts digitally. Snap photos or use a receipt-scanning app so you never lose a paper receipt.
• Set aside money for tax. A good rule of thumb is to save 25–30% of your profit for your tax bill. Pop it into a savings account so it is there when you need it.

Tools like Penny, Accounted's AI bookkeeping assistant, can take a lot of the hassle out of this — automatically categorising your transactions and keeping your records tidy throughout the year.

What Happens If You Do Not Tell HMRC?

It is worth mentioning that HMRC has become increasingly good at spotting undeclared income. They receive data from online platforms, banks, and payment processors, so the days of quietly earning on the side without anyone noticing are largely over.

If you should have registered and filed a return but did not, you could face:

• Penalties for late registration — up to 100% of the tax owed in serious cases
• Penalties for late filing — starting at £100 and increasing over time
• Interest on unpaid tax — charged from the date it was originally due

The best course of action is always to get things sorted proactively. If you have been earning above the threshold and have not registered, you can make a voluntary disclosure to HMRC. They tend to be much more understanding when you come to them rather than waiting to be caught.

Key Takeaways

• You can earn up to £1,000 from a side hustle without telling HMRC, thanks to the trading allowance.
• Above £1,000, you need to register as self-employed and file a Self Assessment tax return.
• Your side hustle profit is added to your employment income for tax purposes.
• You can deduct legitimate business expenses or use the £1,000 trading allowance (but not both).
• Keep good records from day one — it saves time, stress, and money.

Running a side hustle should be exciting, not stressful. Once you understand the tax basics, it really is just a matter of staying organised and filing on time.

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Accounted helps UK sole traders stay on top of their bookkeeping and tax. Start your free 30-day trial at getaccounted.co.uk

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Related reading:

• How Much Can I Earn Before I Need to Tell HMRC?
• How to Register as Self-Employed With HMRC
• Tax When You Are Employed and Self-Employed

Related Reading

• Print-on-Demand Businesses — Tax and Accounting Guide

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