Recently I got a regular freelance gig – very exciting! This has taken my blog/freelance writing ‘side hustle’ from making me a very small amount to nearly £500 a month – a sum where you have to start paying tax on your side hustle. The tax rules vary from place to place, but this is what you need to do if you have a UK side hustle:
I’m not saying this to boast about the income, just to explain the thought process behind this article. Having gone through the process of registering as self-employed and paying tax, I know it can seem daunting and stressful.
As so many people have started UK-based side hustles recently, I thought this post could help others who may be finding themselves in a similar situation.
In this post I will cover:
- When do I need to start worrying about tax?
- How much tax will I pay?
- How do I pay my tax bill?
- Who can help me sort out my tax?
- Where else can I find information?
When do I need to start worrying about tax?
When you need to start paying tax on your UK side hustle depends on your other income.
If you earn more than the personal tax allowance -currently £12,500 – you will need to start paying once your income hits £1,000. It’s important to note this is INCOME not profits. This means as soon as £1,000 comes into your account within a tax year – which runs April 6 to April 5 – you have to register for self-assessment, regardless of your costs.
For those who don’t earn above the personal tax allowance, you will not have to start paying tax until you earn above £12,500. But, you do still need to complete a Self Assessment tax return once your income exceeds £1,000.
How much tax will I pay?
The amount of tax you will pay on your UK side hustle again depends on your other income. Side hustles are taxed in line with your tax bracket.
For example, if you are a basic rate tax payer – £12,501 to £50,000 – and your side hustle income doesn’t take you above this threshold, you will pay tax at a rate of 20 percent.
As a higher rate tax payer – £50,001 to £150,000 – you will pay tax at a rate of 40 percent.
For any income above £150,000, you will pay a 45 percent tax rate.
This is in its simplest form. You can offset certain business expenses, which will reduce the amount of income you pay tax on.
For example, if your turnover is £10,000 and you claim £2,000 in allowable expenses, you only pay tax on the remaining £8,000 – known as your taxable profit.
The expenses have to be reasonable, however. You can’t claim for a car if you don’t have to drive for your business.
Things you can claim if they apply to you include: the cost of materials, any staff costs, advertising or marketing expenses and office expenses – think WiFi and phone bills.
How do you pay tax on your UK side hustle?
Paying tax on your side hustle is sadly not as simple as when you’re on PAYE.
Most of us are used to the tax coming out of our pay checks before it’s even entered our bank accounts. This isn’t the case with self-employed income.
The first step is to file a Self Assessment tax return. These are normally due by midnight 31 January for the previous tax year. Don’t worry if you haven’t filed this year, as the deadline has been extended to the end of February. However, any tax you owe is still due.
If you’ve only just started making money from your side hustle, you don’t need to worry about this deadline. However, it’s good to get ahead of the game and register as self-employed with HMRC so you can complete your return when the time comes.
Once you’ve filed your tax return, the next step is paying the tax you owe.
Normally, there are two dates each year where you will have to pay any tax you owe. These are January 31 and July 31. This means, income could be sitting in your account for 6 months before you have to pay the tax on it.
Personally, I like to calculate the rough amount of tax I will have to pay on my income each month and set that aside in a separate account. This way, I will hopefully avoid being caught out by an unexpected tax bill in July!
Who can help me sort out my tax on my side hustle?
This may all sound very complicated. If it does seem overwhelming, don’t worry. A lot of us feel that way.
An accountant is the best option to help you if you are struggling with your tax return or unsure of how much to pay when.
This is by no means a requirement but it can save a lot of time and stress for you. It may also save you from some nasty penalties if you inadvertently file incorrectly or pay less than you should.
My personal choice is to use an accountant. I worked out the amount I would spend on an accountant would be the same amount as I would be paid for about 5 hours work. But, completing it myself would take me far longer than 5 hours. Therefore, it would take away time I could spend earning more money or simply putting my feet up and relaxing for a change!
Where else can I find information?
There’s a lot of information out there, so sorting through it all can be tricky.
The best place to start is with the gov.uk website. This has all the information you need to know.
Citizens Advice also offers good and clear information on tax returns.
Be careful when getting advice from unknown sources. Make sure the information is up to date and correct. There’s also a lot of scams out there at the moment, so if something doesn’t seem right do double check.
If you found this post interesting, please like it and share across social media or send it to your friends. I’d also love to hear your thoughts and experiences. What do you think about this topic? Do you pay tax on your side hustle? Comment it below!
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