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Hello, I’m Sara, a Chartered Accountant who transitioned into running an online business. I understand just how daunting and confusing it can be to take the leap into self-employment. The questions, the uncertainties, and the steep learning curve are all challenges I’ve faced myself. Whether you’re in the early stages of planning to go self-employed, just dipping your toes into making money on your own terms, or already fully committed, this blog is dedicated to helping you every step of the way. Through detailed guides, expert tips, and practical advice, I aim to be your go-to resource. From mastering financial management and navigating tax obligations to setting up the foundations of your business, I’m here to provide you with the clarity and confidence you need to thrive in your self-employment journey.
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Wrap-Up
In summary, side hustlers must adhere to the same business tax rules as other businesses. The simplest way to start is by registering as self-employed, which allows you to benefit from the £1,000 tax-free trading income allowance.
Once registered, you'll need to file a tax return annually, reporting your income and paying income tax, Class 2, and Class 4 National Insurance on your business profits, based on your earnings. Remember, as a side hustler, your income tax is calculated on the total of your job and side hustle earnings. Read this guide to learn how to budget for your tax bill when you’re self-employed.
VAT for Side Hustle Business Owners
VAT (Value Added Tax) is a tax applied to the cost of specific goods and services in the UK. It affects consumers and businesses that are not registered for VAT. The tax is added at a fixed percentage rate, and there are three main rates:
For example:
If you buy a laptop from Apple priced at £1,200 plus VAT, with VAT at the standard rate of 20%, the total cost will be £1,440.
Businesses with a taxable turnover of £85,000 or more must register for VAT. Upon registration, they must add VAT to the price of the goods or services they sell and can also reclaim VAT paid on business-related purchases.
VAT registration is distinct from self-employment registration. If you are not VAT-registered, you will pay VAT as a consumer, even on business purchases. Only VAT-registered businesses can reclaim VAT paid, as they have access to the necessary forms.
VAT rules apply uniformly to all business structures, including Limited Companies, sole traders, and partnerships.
For more information on how VAT works and the advantages of early registration, read this guide.
As a self-employed individual, you need to handle your tax and National Insurance Contributions (NICs) through the Self-Assessment system. Here’s how it works:
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File Your Tax Return:
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You must file a tax return each year declaring your taxable business profits.
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The deadline for filing your tax return is 31 January following the end of the tax year. For example, for the 2023-24 tax year, your tax return is due by 31 January 2025.
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Paying Your Tax Bill:
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Along with filing your tax return, you need to pay any tax owed by 31 January. This amount is calculated by HMRC based on the information provided in your tax return.
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Payments on Account:
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In addition to your tax bill, you need to make two payments on account each year. These are advance payments towards your next tax bill.
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The first payment on account is due by 31 January, and the second is due by 31 July.
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Example Calculation:
If you are self-employed for the tax year 2023-24 and your taxable profits are £45,216, here’s how your payments would break down:
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Total Tax Bill: £9,647.18
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File Your Tax Return: By 31 January 2025
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Pay Your Tax Bill: £9,647.18 by 31 January 2025
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First Payment on Account: £4,733.89 by 31 January 2025
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Second Payment on Account: £4,733.89 by 31 July 2025
By staying on top of these deadlines and payments, you’ll ensure you meet your tax obligations without any last-minute stress.
How to Pay Tax and National Insurance When Self-Employed
Class 2 and Class 4 National Insurance Contributions
As a sole trader, you’ll need to pay National Insurance Contributions (NICs) on your taxable business profits, in addition to income tax.
National Insurance Contributions Breakdown:
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Class 2 NICs: These are payable if your taxable profits exceed £6,725. The rate is £3.45 per week.
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Class 4 NICs: These are payable if your taxable profits exceed £12,570. The rate is 9% on profits between £12,570 and £50,270, and 2% on profits above £50,270.
Note: Class 2 and Class 4 NICs are separate from Class 1 NICs, which are deducted from your employment income by your employer.
Example Calculation:
For the tax year 2023-24, if your taxable business profits are £40,000:
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Class 2 NICs: £3.45 per week x 52 weeks = £179.40
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Class 4 NICs:
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9% on profits between £12,570 and £50,270 = £3,390.00
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2% on profits above £50,270 = £0 (since profits don’t exceed this threshold)
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Total Class 4 NICs = £2,468.79
Total National Insurance Contributions: £179.40 (Class 2) + £2,468.79 (Class 4) = £2,648.19
If you are employed, your employer will handle Class 1 NICs on your employment earnings, so you don’t need to calculate or pay these separately.
Income Tax and National Insurance for Sole Traders
UK Tax for Side Hustlers
As a self-employed individual, you’ll need to pay income tax, Class 2 national insurance, and Class 4 National Insurance on the profits from your side hustle.
Profit refers to your total income minus any allowable expenses. For more details on tax deductions, refer to this guide on claiming self-employed expenses.
Let’s break down each type of tax:
You’ll pay income tax on the taxable profits from your side hustle. The amount you owe will depend on your total income, with rates applied on a sliding scale based on the tax bands.
Income Tax Rates (2023-24 Tax Year):
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0%: On income up to £12,570 (personal allowance)
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20%: On income from £12,571 to £50,270 (basic rate)
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40%: On income from £50,271 to £100,000 (higher rate)
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60%: On income from £100,001 to £125,139 (higher rate + personal allowance restriction)
National Insurance Rates:
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Class 2 NI: £3.45 per week on taxable profits over £6,725
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Class 4 NI: 9% on taxable profits between £12,570 and £50,270, and 2% on profits above £50,270
Example Calculation:
If you earn £40,000 from your job and £20,000 from your side hustle, your total income is £60,000. The income tax you’d pay is calculated as follows:
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0% on the first £12,570
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20% on the next £37,700
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40% on the remaining £9,730
This results in a total income tax of £11,432.60.
Your combined earnings push you into the higher rate tax bracket of 40%. You will typically receive your personal allowance through your payslip from your employer.
A tax return, also known as an SA100, is a form issued by HMRC that appears in your online HMRC account once you’re registered for self-assessment.
The form consists of various sections and boxes where you need to declare your income. After you input all your figures, HMRC will calculate how much tax you owe.
You must complete and submit your tax return by 31 January each year, summarizing your earnings for the previous tax year. For example, a tax return due by 31 January 2024 will cover your earnings from 6 April 2022 to 5 April 2023.
Save the link to this step-by-step guide to filling in your tax return to help get you through your first tax return
What is a Tax Return?
After registering as self-employed, you’ll receive a Unique Taxpayer Reference UTR number and will be subject to the rules of self-assessment.
Self-assessment is the process established by HMRC for individuals who receive untaxed income, such as from a side hustle, to declare it to the government and pay any tax due. You’ll do this by completing a tax return form.
What is Self-Assessment?
In the UK, you can earn up to £1,000 in income (not profit) each tax year without needing to register as self-employed.
Note: The tax year runs from 6 April to 5 April each year.
This tax break is known as the trading income allowance and allows you to earn a bit of cash on the side or try out self-employment without tax obligations.
Once your business income exceeds £1,000, you’ll need to register your side hustle with HMRC, report your earnings, and pay tax based on your profit.
You’re not required to use the £1,000 trading income allowance; you can choose to register your side hustle as a business as soon as you start.
Read this post for step-by-step guidance on registering as self-employed in the UK.
When to Register Your Side Hustle as a Business
The way you pay tax on your side hustle depends on the business structure you choose.
In the UK, the most common business structures for side hustlers are either sole trader or Limited Compan, though other options like partnerships also exist. The best choice for you will depend on your individual circumstances, earnings level, and the amount of paperwork you’re willing to handle.
Read this guide to explore whether a Limited Company is good fit for your business.
For simplicity, we’ll assume you’re considering registering as self-employed. This is typically the easiest way to start working for yourself.
How Do Side Hustle Taxes Work in the UK?
Does Your Side Hustle Even Count as a Business?
“It’s just a little bit of extra money.”
“It’s cash in hand, so it doesn’t count.”
“I don’t make enough to pay tax.”
The reality is that none of these excuses matter. In most cases, side hustles are considered businesses by HMRC and are subject to business tax rules.
Whether it’s small amounts from activities like gardening, driving for Uber, or doing smartphone surveys, your side hustle earnings likely fall under the category of untaxed income. It’s your responsibility to understand the tax rules, inform HMRC of your earnings, and pay tax if required.
Learning how to run a business can be overwhelming. New technical jargon, endless tasks to juggle, and perhaps most daunting of all—understanding side hustle tax.
The good news is, side hustle tax isn’t as complicated as it seems, even if you’re working a regular job. In this guide, I’ll simplify everything you need to know about what taxes to pay, what actions to take, and when they’re due.