Should you be paying tax on your side hustle?

Traditional ways of working and earning are evolving, and with the rising cost of living, many people are turning to side gigs or alternative income streams alongside their main job. If that sounds familiar, you might be wondering whether those extra earnings are subject to tax.

HM Revenue & Customs (HMRC) has launched a campaign to clarify when individuals need to report income from side hustles, helping to prevent unexpected tax issues.

The guidance outlines five distinct types of side hustle. Below, we provide a brief overview of each and highlight the key points you need to be aware of.

1. I’m buying or making things to sell

If you’re creating products to sell, whether handmade items, digital creations, upcycled furniture, or goods bought for resale, HMRC is likely to view this as trading activity.

2. I’ve got a side gig

Side gigs can take many forms, from car repairs and deliveries to dog walking, gardening, or tutoring. While these activities may be done in your spare time, if they’re carried out regularly over a period of months, HMRC is likely to classify them as trading

3. I work for myself doing multiple jobs

If you’re earning income from multiple jobs, HMRC may consider you to be trading, which means you might need to register as a sole trader.

4. I’m a content creator or influencer

What may have started as a hobby could now be generating income. For example, if you’re paid to post sponsored content for a brand or earn advertising revenue from online videos or a blog, HMRC is likely to view this as trading activity.

How much can you earn from trading before you need to tell HMRC?

If you earn £1,000 or less from side hustle activities in a tax year, you won’t need to pay tax on that income. However, if your earnings exceed £1,000, you must inform HMRC and may be liable to pay tax.

It’s important to note that this £1,000 threshold is a single trading allowance, it applies to your total income from all side hustle activities combined. You don’t receive a separate allowance for each type of income.

There’s a common misconception that selling fewer than 30 items a year means you don’t need to pay tax. This isn’t accurate. While online platforms are required to report to HMRC if you sell more than 30 items annually, this reporting requirement doesn’t determine your tax liability. You may still need to pay tax even if you sell fewer than 30 items, the key factor is whether your total earnings exceed £1,000.

On the other hand, if you’re simply selling unwanted personal items occasionally, it’s unlikely that you’ll need to pay tax, as this is generally not considered trading.

Finally, there is one other category of side hustle income that may need to be reported to HMRC, but it follows a different set of rules—which we’ll explore next.

5. I rent out my property

If you earn income from renting out a holiday let, a spare room, or a property through an app, you may need to report this to HMRC.

• Spare rooms: If you’re renting out a room in your main residence, you may qualify for the £7,500 Rent a Room Scheme allowance, which means you won’t pay tax on income up to that amount.
• Other properties: If you’re renting out a property you don’t live in, you can use the £1,000 property allowance. If your income exceeds this threshold, you may be liable for tax.

It’s worth noting that you can use the £1,000 trading allowance, the Rent a Room Scheme, and the property allowance, but each applies to different types of income.

If you’re unsure whether your side hustle income needs to be reported to HMRC, feel free to get in touch with our team.