How second income is taxed in the UK
If you have a day job, your employer handles your income tax through PAYE. Any extra income you earn, from freelancing, selling online, a side business, or any other self-employed activity, is taxed separately through Self Assessment.
Your second income is added to your employment income to calculate your total taxable income for the year. You pay income tax on the combined total at your marginal rate (20% for basic rate taxpayers, 40% for higher rate). If your combined income stays under the Personal Allowance of £12,570, you pay no income tax at all.
The £1,000 Trading Allowance
Every UK taxpayer gets a £1,000 Trading Allowance each tax year. If your total self-employment income (before expenses) is under £1,000, you don't need to declare it or pay any tax on it. This covers selling on eBay, casual freelancing, odd jobs, and most small-scale income activities.
If your income exceeds £1,000, you have two options: deduct the flat £1,000 allowance from your income (simpler), or deduct your actual allowable expenses (better if your costs are higher than £1,000). You can't do both, pick whichever reduces your tax bill more.
National Insurance on self-employment income
In addition to income tax, self-employed people pay Class 4 National Insurance at 6% on profits between £12,570 and £50,270, and 2% above that. If your profits are below £12,570, no NI is due.
Class 2 NI (previously a flat weekly amount) was abolished from April 2024. You now only pay Class 4 on profits.
Reducing your tax bill with expenses
You can deduct legitimate business expenses from your income before tax is calculated. Allowable expenses for most second income activities include: equipment (laptop, camera, tools), software subscriptions, a proportion of your phone bill, postage and packaging, advertising costs, professional fees (accountant, legal), and if you work from home, a proportion of household costs.
Keep receipts for everything. A small spreadsheet tracking date, description, and amount is all you need. At tax time, these deductions can meaningfully reduce your bill.
When and how to register with HMRC
You must register for Self Assessment by 5 October following the end of the tax year in which your income exceeded £1,000. So if you first earned over £1,000 between April 2026 and April 2027, you must register by 5 October 2027. Register online at gov.uk, search 'register for Self Assessment'. You'll receive a UTR (Unique Taxpayer Reference) number within 10 days.
Your first tax return covers income from 6 April to 5 April the following year and is due by 31 January. You'll also pay any tax owed by the same deadline.
5 common mistakes to avoid
1. Spending all your earnings. Set aside 25–30% of every payment for tax from day one. Opening a separate savings pot specifically for tax prevents nasty surprises in January.
2. Not keeping records. HMRC can investigate up to 6 years back. Keep records of all income and expenses.
3. Missing the registration deadline. Late registration incurs automatic penalties starting at £100.
4. Forgetting National Insurance. Many first-timers only budget for income tax and are surprised by the NI bill.
5. Not claiming all allowable expenses. Most people underclaim. When in doubt about whether something is deductible, ask an accountant, their fee is itself a deductible expense.