Tax can be confusing, but if you’re earning money from a side hustle, you don’t need to be scared of it. From most people, tax is actually pretty straightforward. If you keep up-to-date records and file in advance, there’s nothing to be scared of. Here’s how to get started. 

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Getting Started

Let’s assume you have a day job alongside your side hustle. You can then choose to become both employed (through your main job) and either a sole trader or a Limited Company. Most side hustles are best run as a sole trader. This is how most people start out with earning extra money on the side. 

When Do I Start To Pay Tax On My Side Hustle?

A lot of people make the mistake of assuming that any side income, such as money made through doing surveys, selling items on Facebook, or blogging, isn’t taxable. 

Actually any money that you earn can be taxable. HMRC uses several ‘badges of trade’ to decide whether or not someone is in business and has a taxable trading income. You can simplifly this to ‘what is your intention?’ If you intend to make a profit, then you’re trading. If you have a regular side hustle, like a blog, that you want to monetise, then you’re trading. 

However, if you sell the old item on Depop after a clear out, you’re probably not trading, although this income could still be taxable as casual or miscellaneous income. 

Once you’re trading, you have trading income, and you will need to think about tax and registering your business with HMRC. While you won’t yet be at the stage where you need an auditing accountant company, it might be helpful to get help from an accountant. 

There is a useful exemption for small traders. If your total trading income is under £1000 in a tax year (6 April – 5 April), you don’t need to register with HMRC or pay tax. This means that if you make the odd bit of income from eBay or freelance service, you won’t need to worry about tax. 

How And When Should I Register For Tax?

Once you are trading, you need to register with HMRC by 5 October following the tax year. For example, if you set up a business in December 2021, the tax year ends on 5 April 2022, so you must register by 5 October 2022. 

It’s a good idea to register as soon as possible, so you don’t get caught out with a fine. It’s easy to register with HMRC. The simplest way is to do it online. Just search for ‘HMRC register for self-assessment and choose the self-employed option. 

Once you’ve done that, HMRC will send you codes in the post to activate your account. This will also register you as self-employed for National Insurance. Once you have registered, HMRC will send you a tax return every year until you tell them you don’t need one. 

If you choose to stop your side hustle, you need to contact HMRC and deregister. Don’t just ignore your tax return!