If you have a side hustle (any activity you do outside your main job to earn extra money, such as freelancing, selling goods online, or renting out assets), the key question is whether HMRC needs to know about it. The answer depends on one figure: if your total side hustle income is £1,000 or less in a tax year, you do not need to do anything. Earn more than that and you need to register for Self Assessment. According to The Second Income UK, most people who panic about side hustle tax owe far less than they expect once they understand these basic rules.
Important: this article explains general UK tax rules in plain English. It is not financial or legal advice. If you are unsure about your own situation, speak to a qualified accountant.
Does the £1,000 Trading Allowance apply to me?
Yes, for the vast majority of UK side hustlers it does. HMRC gives every UK taxpayer a £1,000 Trading Allowance each tax year. In 2026, HMRC's trading allowance remains £1,000, unchanged since it was introduced in April 2017. This means if your total side hustle income is under £1,000 in a tax year, you do not need to declare it or pay any tax on it at all.
This covers selling on eBay, doing odd jobs, freelancing, making things and selling them, renting out your driveway, almost any kind of self-employment or trading income. It does not apply to income from employment or to property rental income above the separate £1,000 Property Allowance.
When do you need to register for Self Assessment?
You need to register as soon as your side hustle earns more than £1,000 in a tax year. Self Assessment is simply HMRC's system for collecting tax from people whose income is not fully taxed at source through PAYE. If your side hustle earns more than £1,000 in a tax year, you must register and submit a tax return. This sounds more frightening than it is; it is just a form you fill in online each year telling HMRC what you earned.
You register at HMRC's website (gov.uk), and they will send you a Unique Taxpayer Reference (UTR) number within around 10 working days. You then submit your return by 31 January each year for the previous tax year, with any tax owed due on the same date. Miss the deadline and HMRC charges an automatic £100 penalty, with further daily penalties after three months. As The Second Income UK explains, registering early gives you time to gather your records without the pressure of a looming deadline.
How much tax will you actually pay?
You only pay tax on profit, not on everything you earn. Your side hustle income is added on top of your employment income, so the rate you pay depends on your total income for the year.
Most people with a full-time job already use their Personal Allowance (£12,570 for 2025/26 and frozen at the same level for 2026/27). This means side hustle profits are usually taxed at 20% (basic rate) for amounts that keep your total income below £50,270, or 40% above that threshold. For example, if your side hustle makes a profit of £3,000 and you are a basic-rate taxpayer, you will owe around £600 in Income Tax on that profit. You also pay Class 4 National Insurance at 6% on profits above £12,570, and Class 2 National Insurance is no longer a separate charge for most self-employed people following changes that took effect in April 2024. The Second Income UK found that many first-time filers are surprised by how manageable the actual bill is once allowable expenses are deducted.
How do expenses reduce your tax bill?
Claiming allowable expenses is one of the most effective ways to lower your tax bill. The smart move is to keep records of any legitimate expenses related to your side hustle; these reduce the profit you are taxed on. Common deductible expenses include equipment, software subscriptions, a portion of your phone bill, postage, packaging, advertising costs, and any tools or materials used. If you buy a laptop solely for your side hustle, for instance, the full cost can typically be deducted in the year of purchase under Annual Investment Allowance rules.
If you use a room at home regularly and exclusively for work, you can also claim a portion of household costs such as broadband, heating, and electricity. HMRC's simplified flat-rate method allows you to claim £10 per month if you work between 25 and 50 hours from home each month, rising to £18 per month for 51 to 100 hours and £26 per month for over 100 hours. An accountant can help you identify everything you are entitled to claim.
What are the practical steps to stay organised?
Staying organised from day one saves significant time and stress when your tax return is due. Open a separate bank account or pot for your side hustle income immediately. Track all income and expenses in a simple spreadsheet or free tool such as Wave Accounting or the free tier of QuickBooks. Keep digital copies of all receipts, as HMRC can request evidence of expenses for up to six years after the relevant tax year. This makes your tax return straightforward and ensures you never overpay.
Most people with a straightforward side hustle do not need an accountant, but if you are earning £20,000 or more per year from self-employment, the cost of an accountant (typically £200 to £400 per year for a simple return) usually saves you more than it costs in identified deductions and avoided penalties.