SIDE-HUSTLES can help boost your income in tough times, or when you're saving for something special.
But anyone making extra cash could be facing an unexpected bill from the taxman.
Selling on Ebay or Facebook Marketplace, or renting out your driveway may not know they have to pay tax on the money they bring in.
HMRC suspects there are thousands of people in the UK, including online traders, who haven’t paid the right amount of tax on their earnings
It has recently been sending out letters to people it is discovering are likely to have unpaid bills.
So, if you have a side income yourself, what do you need to make sure you’re not one of them?
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Enzo Ottens, founder of Earnr, a finance and tax app for small businesses and side incomes, has the answers.
He says: “Most side hustles, like starting an eBay store or selling things on a market, are officially classed as self-employed income.
"For most of these side hustles, you need to tell HMRC when you make over £1,000 in revenue or sales in a particular tax year.”
This doesn’t mean how much money you actually earn.
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“You could have sold £2,000 worth of goods but only made a profit of £500. You still need to declare this to HMRC,” he explains.
“You first need to inform them that you’re a sole trader on the gov.uk website where you tell them how you earn the income, when you started, and who you are.
"HMRC will then send you a UTR number. Once you have this number, you can submit a self-assessment tax return,” says Enzo.
The tax year runs from April 6 to April 5 of the following year, and the deadline to pay is the following January 31.
Know your tax-free allowances
Luckily, this rule doesn’t apply to all side incomes – if you rent a room out in your home, you can earn £7,500 in a tax year before you need to tell HMRC.
But this only applies if you’re renting to a lodger. “It’s important to note you can’t use this if the room you’re letting out isn’t furnished or is used as an office,” says Enzo.
“And if you are renting out a whole property, aka acting as a landlord, this needs to be declared to HMRC as soon as you make over £1,000 in revenue.”
Equally if you rent anything else, such as a van or your garage, you need to pay tax once you’ve made over £1,000.
Another exemption is selling second-hand goods on eBay – in some instances.
Enzo says: “You can sell £6,000 worth of personal possessions – things you did not buy with the intention of selling – a year without declaring it to HMRC.”
Enzo has seen many of his side hustling customers fall foul of HMRC.
He said: “The most common mistake we see is customers not including their employment income on their self-assessment tax return.
"Many people believe that, because they’ve already paid tax on this, they don’t need to declare it. We had a customer that earned £5,000 from a side hustle and thought they didn’t have to pay any tax.
"Then once HMRC had processed their tax return, they had to pay a £1.000 tax bill as they didn’t inform us that they were also employed, and so over the personal allowance threshold,” he says.
Most people have a personal tax-free allowance of £12,570 a year. You get this whether you're employed or self-employed.
But if you have income from both you don't get double.
The tax you could owe will depend on how much you earned and any allowances, plus there may be fines and interest applied depending on if you tell the taxman on time.
Let the taxman know on time
Another common mistake is people registering too late with HMRC.. says Enzo.
"We had a customer that started an Etsy store in the 20/21 tax year but didn’t register with HMRC until the 21/22 tax year because their profit was below £1,000 before then.
"Their revenue, however, was above £1,000 – but they’d missed the 20/21 self-assessment tax return deadline and were fined £100 for this late submission.
"People also forget that they need to pay for their student loan if their side hustle income is above a certain amount.”
The tax you pay on your side income is linked to the tax bracket you’re in for your main job, so most people will pay 20% at the basic rate tax on a side hustle
If your side hustle is very lucrative and you go over £50,270 (including other work), it will be 40% tax on anything over that amount.
There are ways you can cut down a hefty tax bill – by using one of the allowances of £1,000, such as the property or trading allowance, or by staying on top of your expenses and bookkeeping.
Note that you can’t claim both these allowances – it's £1,000 for income from either trading or property.
“If you earned a marginal amount, you can use the trading allowance to lower your tax liability by £1,000.
"This is a life saver for most small side hustles, especially service-based ones like tutoring, where expenses are low,” says Enzo.
Don't forget expenses
You can also reduce your bill by deducting expenses
“People often forget they can claim work from home expenses or mileage expenses if this is part of their side hustle,” says Enzo.
If you’re doing your side hustle from home, the tax on this income can be reduced by claiming a portion of your bills – including utilities like energy, broadband and calls.
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Plus you can claim for full expenses for items like stationery and printing costs.
You can also claim back 45p per mile in petrol if you use your car for your side hustle business, or the full cost of any other travel expenses you incur as part of this work.
Do you have a money problem that needs sorting? Get in touch by emailing [email protected]
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