Side Hustle Tax Guide: When Does HMRC Need to Know?

The Accounted Business Team·23 February 2026·6 min read

Got a Side Hustle? Here Is When HMRC Starts Paying Attention

Side hustles are everywhere. Whether you sell crafts on Etsy, drive for Uber at weekends, tutor after work, walk dogs, or freelance on Fiverr, millions of people in the UK earn money alongside their main job. The question most people ask is: do I need to tell HMRC?

The short answer is yes, eventually. But the threshold is more generous than you might think, and understanding the rules means you can stay on the right side of HMRC without overcomplicating your life.

This guide covers the 2025/26 tax year.

The £1,000 Trading Allowance

The single most important rule for side hustlers is the trading allowance. If your total gross income from self-employment (all side hustles combined) is £1,000 or less in a tax year, you do not need to:

Register as self-employed
File a Self Assessment return
Pay any tax on that income

The £1,000 applies to gross income — your total earnings before expenses. If you earn £900 from tutoring and spend £200 on textbooks, your gross income is £900, which is below the threshold. You are fine.

If you have multiple side hustles, add them together. Earning £600 from dog walking and £500 from selling on eBay gives you £1,100 gross income — over the threshold.

Once you exceed £1,000, you must register as self-employed with HMRC within three months and file a Self Assessment return. You can still use the £1,000 as a flat deduction instead of claiming individual expenses, but in most cases your actual expenses will be higher.

When Does a Hobby Become a Business?

HMRC draws a line between hobbies and trading, and it is not always obvious. The key factors are:

Intention to profit: Are you doing this to make money, or purely for enjoyment?
Regularity: Do you do it repeatedly over time, or was it a one-off?
Organisation: Have you set up a shop, website, or structured offering?
Scale: Is it growing over time?

Baking a cake for a friend's birthday is a hobby. Regularly taking cake orders through Instagram and charging for them is trading. Running once for fun is a hobby. Coaching runners for a monthly fee is trading.

The grey area is where people start doing something they enjoy, and it gradually becomes something other people pay them for. The trading allowance gives you room to experiment. Once you consistently earn more than £1,000, it is time to register.

How Side Hustle Income Is Taxed

If you have a main job paid through PAYE and a side hustle, here is how the tax works:

Your employer deducts tax from your salary through PAYE, usually using your full £12,570 Personal Allowance
Your side hustle profit is added on top of your employment income
You pay tax on the combined total at your marginal rate

For example, if your salary is £35,000 and your side hustle profit is £5,000, your total income is £40,000. Your employer has already handled tax on the £35,000 through PAYE. The £5,000 side hustle profit is taxed at your marginal rate — in this case, 20% basic rate, giving you £1,000 in Income Tax on the side hustle.

You also pay National Insurance on side hustle profits:

Class 2: £3.45 per week (if profits exceed £6,725)
Class 4: 6% on profits between £12,570 and £50,270, 2% above

Your employer NI from your main job is separate and unaffected.

Common Side Hustles and Their Tax Treatment

Selling Online (Etsy, eBay, Amazon, Vinted, Depop)

Selling personal items you no longer want is not trading. Buying items to resell, or making items to sell, is trading once you exceed £1,000 gross income. Under DAC7 rules, platforms now report seller information to HMRC if you exceed 30 sales or €2,000 in a calendar year.

Freelancing (Upwork, Fiverr, PeoplePerHour)

Freelance income is self-employment income from the first pound. The trading allowance still applies if you earn under £1,000, but freelancing is clearly trading, not a hobby. Register once you cross the threshold.

Driving (Uber, Bolt, Deliveroo)

You are self-employed. All earnings are taxable. The trading allowance applies if you earn under £1,000 (unlikely for regular drivers). Vehicle costs are your largest deductible expense.

Tutoring

Private tutoring income is self-employment income. Whether you teach in person or online, through a platform or independently, it is all taxable above the trading allowance.

Dog Walking and Pet Sitting

Self-employment income. Expenses include vehicle costs, insurance, leads and equipment, and marketing.

Renting a Room (Airbnb, SpareRoom)

This is not the trading allowance — it falls under the Rent a Room scheme with a separate £7,500 tax-free threshold if you let a furnished room in your own home.

Renting Out Your Driveway or Storage Space

The £1,000 property allowance applies (separate from the trading allowance). If you earn under £1,000 from renting property-related assets, it is tax-free.

Social Media and Content Creation

Sponsorship deals, affiliate income, ad revenue, and paid partnerships are all taxable self-employment income once they exceed £1,000.

Matched Betting

HMRC does not tax gambling winnings, including matched betting profits. However, if you provide matched betting advice or courses for a fee, that income is taxable.

How to Declare Side Hustle Income

Step 1: Register as Self-Employed

Do this online at gov.uk. You will receive a UTR number by post within 10 working days.

Step 2: Keep Records

From the day you register, keep records of:

All income received (invoices, platform statements, bank deposits)
All business expenses (with receipts)
Mileage log if you drive for work

Step 3: File a Self Assessment Return

Your return for the 2025/26 tax year (6 April 2025 to 5 April 2026) is due by:

31 October 2026 (paper)
31 January 2027 (online)

You declare your employment income (from your P60) and your self-employment income on the same return. HMRC calculates the total tax due, credits what your employer has already paid through PAYE, and tells you what remains to pay.

Step 4: Pay What You Owe

Payment is due by 31 January 2027. If you owe more than £1,000, HMRC may require payments on account towards next year's bill.

Mistakes to Avoid

Thinking all side income is tax-free. The trading allowance only covers the first £1,000.
Not registering. HMRC receives data from platforms, banks, and employers. If your declared income does not match, they will notice.
Forgetting to claim expenses. Many side hustlers pay more tax than they need to because they do not claim legitimate costs.
Leaving it all to January. If your side hustle runs all year, tracking as you go saves hours at year-end and avoids missed deductions.
Not budgeting for tax. Set aside 20-30% of your side hustle profit for tax. It is much easier than finding a lump sum in January.

Keeping It Simple

The hardest part of side hustle tax is not the tax itself — it is keeping the records. If you track income and expenses as they happen, the Self Assessment return is straightforward. If you leave it all to the last minute, it becomes a stressful mess of guesswork and missing receipts.

Accounted is designed for exactly this situation. Connect your bank, snap your receipts, and Penny categorises everything throughout the year. When filing time comes, your numbers are ready. Start your free trial with Accounted today and take the stress out of your side hustle tax.

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