HMRC Side Hustle Tax

HMRC Side Hustle Tax: What You Need to Know

The gig economy is on the rise, with more and more people turning to side hustles to supplement their income. However, with this comes the need to understand HMRC tax on side hustle obligations and the implications for those with a additional side incomes. Failure to comply with HMRC tax rules can result in penalties and fines, making it essential for side hustlers to understand their tax obligations.

Understanding HMRC tax obligations can be complex, and it is important to seek professional advice if you are unsure. All workers in the UK are subject to national insurance and income tax, and those with a side hustle are no exception. In addition to this, side hustlers also have a trading allowance of £1,000 per year, which comes in addition to the income tax allowance of £12,570.

Reporting and paying tax is an essential part of having a side hustle, and it is important to keep accurate records of all income and expenses. Failure to report income to HMRC can result in penalties and fines, and it is important to ensure that all tax obligations are met. By understanding HMRC tax obligations, side hustlers can ensure that they comply with the law and avoid any unnecessary penalties or fines.

Key Takeaways

• Side hustlers are subject to national insurance and income tax, and must comply with HMRC tax obligations.
• Side hustlers have a trading allowance of £1,000 per year in addition to the income tax allowance of £12,570.
• Reporting and paying tax is essential, and failure to comply with HMRC tax rules can result in penalties and fines.

Understanding HMRC Tax Obligations

Determining Taxable Income

When it comes to side hustles, it is important to understand how HMRC tax side hustle. In the UK, any income earned from a side hustle is subject to income tax and National Insurance contributions. This includes income earned through selling goods or services, renting out property, or any other form of self-employment.

It is important to keep accurate records of all income earned from a side hustle, as well as any expenses incurred in generating that income. This will help determine the taxable income and any deductions that can be claimed against it.

Registering for Self-Assessment

If the income earned from a side hustle exceeds £1,000 per tax year, it is necessary to register for self-assessment with HM Revenue and Customs (HMRC). This involves completing an online registration form and providing details of the side hustle income and any associated expenses.

Once registered, it is necessary to complete a self-assessment tax return each year, detailing all income earned from the side hustle and any associated expenses. The tax return must be submitted to HMRC by the deadline, which is usually 31 January following the end of the tax year.

It is important to note that failure to register for self-assessment or submit a tax return can result in penalties and interest charges from HMRC. Therefore, it is important to ensure that all tax obligations are met in a timely and accurate manner.

Overall, understanding HMRC tax obligations is an essential part of running a successful side hustle in the UK. By keeping accurate records and registering for self-assessment when necessary, individuals can ensure that they comply with all tax regulations and avoid any penalties or interest charges.

Tax Implications for Side Hustles

Starting a side hustle can be a great way to earn extra income, but it’s important to understand the tax implications. In the UK, all income earned from a side hustle is subject to tax, just like income from a regular job. This section will cover two important aspects of the tax implications for side hustles: allowable expenses and national insurance contributions.

Allowable Expenses

One benefit of running a side hustle is that you can deduct some of your expenses from your taxable income. These are called allowable expenses. Allowable expenses are costs that are incurred “wholly and exclusively” for the purpose of running your side hustle. Some common examples of allowable expenses include:

• Office supplies
• Business travel expenses
• Website hosting and domain fees
• Advertising and marketing costs
• Professional fees, such as accounting or legal fees

It’s important to keep accurate records of your expenses so that you can claim them when it comes time to file your taxes. You should keep receipts and invoices for all of your business expenses.

National Insurance Contributions

In addition to income tax, you may also need to pay national insurance contributions (NICs) on your side hustle income. The amount of NICs you need to pay will depend on how much you earn and whether you have any other sources of income. If your side hustle income is your only source of income, you may not need to pay any NICs.

If you do need to pay NICs, you can usually pay them through self-assessment. You will need to register for self-assessment with HM Revenue and Customs (HMRC) if you haven’t already done so. Once you’re registered, you’ll need to file a tax return each year and pay any tax and NICs that you owe.

It’s important to understand the tax implications of your side hustle so that you can plan accordingly. By keeping accurate records of your expenses and understanding your NICs obligations, you can make sure that you’re not caught off guard come tax time.

Reporting and Paying Tax

Filing a Tax Return

If you earn more than £1,000 from your side hustle, you will need to report this income to HMRC and file a tax return. The tax year runs from 6 April to 5 April the following year. You must file your tax return by 31 January following the end of the tax year. For example, if you earned income from your side hustle during the 2023/24 tax year, you must file your tax return by 31 January 2025.

To file your tax return, you can either do it online or by post. Filing online is quicker and easier, and you have until 31 January to do it. If you choose to file by post, you must do so by 31 October following the end of the tax year.

Payment Deadlines and Methods

If you owe tax from your side hustle, you must pay it by 31 January following the end of the tax year. If you miss the deadline, you will incur an initial £100 penalty. After three months, this increases to £10 per day (for up to 90 days). Further penalties are triggered if your return is more than six or 12 months late.

You can pay your tax bill online, by bank transfer, or by cheque. If you choose to pay online, you can use a debit card, credit card, or bank transfer. If you pay by bank transfer, you must use the correct HMRC bank details and reference number. If you choose to pay by cheque, you must make it payable to HM Revenue and Customs only and include your payment slip.

It is important to note that if you are self-employed, you may also need to pay Class 2 and Class 4 National Insurance contributions on your side hustle income. The amount you pay will depend on how much you earn and your overall income for the tax year.

Frequently Asked Questions

How do I declare income from a secondary source of earnings to HMRC?

If you have additional income from a side job or a hobby, you will need to declare it to HM Revenue and Customs (HMRC). You can do this by registering for self-assessment and completing a tax return. You will need to report all your income, including any earnings from self-employment, dividends, or rental income.

What is the threshold for reporting additional income from a side job in the UK?

If you earn more than £1,000 from a side job or hobby, you will need to declare it to HMRC. This is known as the trading allowance, and it applies to all taxpayers, regardless of whether they are employed or self-employed.

Can I be taxed for income generated from a hobby in the UK, and if so, at what point?

Yes, you can be taxed on income generated from a hobby in the UK. If your hobby generates income of more than £1,000, you will need to declare it to HMRC and pay tax on any profits.

What are the implications of not declaring side income to HMRC?

Failing to declare additional income to HMRC can result in penalties and fines. HMRC has been clamping down on side hustles and is actively seeking out those who do not declare their income. It is important to be honest and transparent with HMRC about all your earnings to avoid any legal repercussions.

Are there any tax exemptions available for small-scale supplementary earnings?

There are several tax exemptions available for small-scale supplementary earnings. The trading allowance of £1,000 is one such exemption. Additionally, you may be able to claim tax relief on expenses related to your side job or hobby, such as travel or equipment costs.

How does HMRC differentiate between a hobby and a side business for tax purposes?

HMRC differentiates between a hobby and a side business based on whether the activity is being conducted with the intention of making a profit. If you are carrying out an activity with the intention of making a profit, it will be considered a business, and you will need to declare any income to HMRC. If the activity is purely for personal enjoyment and any income generated is incidental, it will be considered a hobby and may be exempt from tax.

Get in touch with us if you are considering earning money from a side hustle, we can help point you in the right direction and keep HMRC happy. Get in touch today