But with that extra income comes a question many overlook: do you need to pay tax on your side hustle? HM Revenue & Customs (HMRC) has launched a new campaign to help people understand when income from side hustles needs to be declared. In this blog, we take a look at five of the most common types of side hustle, the relevant thresholds, and an upcoming change that could make tax simpler.
Understanding what counts as ‘trading’
HMRC generally considers you to be trading if you're regularly making money by selling goods or services. This applies even if the activity takes place outside your main job or during your spare time. The following examples are considered trading under HMRC guidelines:
1. Tax to pay on buying or making things to sell
If you sell items you’ve made (including digital products), upcycle goods to resell, or purchase stock to sell on for a profit, you’re likely to be trading in HMRC’s eyes.
2. How is part-time work on the side taxed in addition to my main job?
Side gigs might include delivery work, gardening, dog walking, tutoring, or repairing cars. Even if this work is only part-time or occasional, if it continues over a period of time and is carried out for profit, it may be considered as trading.
3. Working for yourself across multiple jobs as a freelancer
If you’re earning through a range of freelance or self-employed jobs, you may be classed as a sole trader and need to register with HMRC accordingly.
4. Should I pay tax on my earnings as a content creator or influencer?
What starts as a hobby can quickly become a source of income. If you’re receiving money from sponsored posts, ad revenue, affiliate links or gifts in exchange for promotion, then this is considered trading income and should be declared.
Information about the £1,000 trading allowance
Everyone is entitled to a £1,000 trading allowance each tax year. If your combined income from self-employment or trading is below this, you do not need to pay tax or inform HMRC. However, if your income exceeds £1,000 (even by a small amount), you must report it – and you may need to pay tax on the amount above the threshold.
It’s important to note this is a single allowance, not a separate allowance for each different side hustle.
Is selling pre-loved items exempt from tax?
Some people believe that selling fewer than 30 items online means you’re exempt from tax, but this is a myth. Online platforms such as eBay or Vinted must report sellers with over 30 transactions a year to HMRC, but this reporting requirement is separate from the £1,000 allowance. Even if you sell fewer than 30 items, you could still need to pay tax if you earn more than £1,000.
That said, if you’re simply selling unwanted personal belongings from time to time, you’re unlikely to need to report or pay tax on this kind of casual sale.
Tax implications of renting out property or a room
There are slightly different rules if you earn income from letting out property. This includes:
- Renting out a room in your home – which may fall under the £7,500 rent-a-room scheme allowance
- Renting out another property or letting via platforms like Airbnb – which may fall under the £1,000 property allowance
You can make use of both the property allowance and the trading allowance, as well as the rent-a-room scheme if eligible.
A possible increase in the Self-Assessment reporting threshold
Recently, the Treasury announced plans to increase the income threshold for Self-Assessment from £1,000 to £3,000, which would reduce the number of people needing to complete a tax return.
If this change is introduced, it could benefit as many as 300,000 individuals – particularly those with small side hustles who currently need to file tax returns due to income over the £1,000 limit. However, the £1,000 trading allowance itself will remain unchanged.
For example, if your side hustle income is £1,200, you’d still pay tax on £200 of it – but if the change comes into force, you may not have to complete a full Self-Assessment tax return to report it.
At the time of writing this blog, no specific implementation date has been confirmed, only that it is expected “within this Parliament”.
Help with tax on a side hustle
If you are unsure whether your side hustle qualifies as trading, or you want to know if you need to complete a Self-Assessment tax return, we’re here to help at LWA. We can advise on the best approach to manage your side hustle income and ensure you meet all of your tax obligations - while helping to keep your tax bill as low as possible.
Contact our tax team on 0161 905 1801 in our Manchester office, or call 01925 830 830 for our Warrington tax team. You can also send us an email to mail@lwaltd.com with ‘Side hustle tax query’ in the subject field.
In the meantime, visit HMRC’s side hustle campaign site here for more information.