TTR Barnes

For many people, a side hustle has gone from being a passion project to a financial necessity.  Whether creating content on TikTok, selling products through Etsy, driving for Deliveroo or freelancing in the evenings, earning extra income has become increasingly common across the UK.

It’s important to remember that these side hustles are classed as taxable activities once certain thresholds are reached.  And with digital platforms now sharing more information with tax authorities than ever before, assuming that “it’s only a bit of extra cash” is becoming an increasingly risky approach. HMRC has repeatedly reminded taxpayers that income from side hustles and online platforms may be taxable and, through new platform reporting rules, now has greater visibility of many forms of online trading activity.

The good news is that being tax compliant is often far less complicated than people fear. The key is understanding the rules before the filing deadline arrives.

What counts as a side hustle?

A side hustle can take many forms, but HMRC’s guidance on online-platform income broadly looks at side-hustle activity in three areas:

• Selling goods for profit
• Providing services
• Creating online content

This could include:

• Social media influencers and content creators
• YouTubers, podcasters and streamers
• Etsy sellers and craft businesses
• Vinted, eBay or Depop resellers
• Deliveroo, Uber Eats and courier drivers
• Freelance designers, marketers or consultants
• Tutors, dog walkers and cleaners
• Individuals renting out parking spaces or equipment

For example, selling unwanted clothes from your wardrobe or personal possessions from around the home will generally be very different from buying goods with the intention of reselling them at a profit. HMRC does not treat every online sale as trading and being reported by an online platform does not automatically mean tax is due.

In more complex cases, HMRC considers a number of factors known as the “badges of trade”. These include the frequency of transactions, whether there is a profit-seeking motive, how the goods were acquired, whether they have been altered or improved before sale and the overall pattern of activity.

Someone who occasionally sells unwanted personal items is unlikely to be carrying on a trade. Someone who regularly buys, sources, manufactures or acquires items specifically for resale is much more likely to be regarded as trading.

Understanding the £1,000 threshold

Individuals with annual gross trading income of £1,000 or less, from one or more trading activities, may not need to tell HMRC or complete a Self Assessment tax return for that income in many circumstances, although certain exceptions can apply.  However, there are two common misconceptions.

1. The threshold applies to income, not profit

Many people assume the £1,000 limit applies after expenses. This is not the case.  The allowance is based on gross income, which is the total amount received before costs are deducted.

For example:

• Etsy sales: £1,400
• Materials and postage costs: £500
• Profit: £900

Although the profit is below £1,000, the gross income exceeds the allowance. This means the individual may still need to register for Self Assessment and report the income.

2. It applies to all trading activities combined

Someone earning:

• £600 from content creation
• £500 from freelance work

has total trading income of £1,100.

The income must be considered collectively, not separately by platform or activity.

Why your side hustle could push you into a higher tax band

Many side hustlers focus only on the tax due from the side business itself.  In reality, HMRC looks at your total taxable income.

That includes:

• Employment income
• Self-employed income
• Rental income
• Investment income
• Other taxable earnings

If your employment income already places you close to a tax threshold, additional side hustle profits could push part of your income into a higher tax band.

For example, in England, Wales or Northern Ireland, someone earning £48,000 through employment, who also generates £8,000 profit from freelance work (giving a total earnings of £56,000), would have only £2,270 of the basic-rate band remaining from their salaried income before reaching the higher-rate threshold of £50,270.

On that basis:

• The first £2,270 of freelance profit would be taxed at 20%
• The remaining £5,730 would be taxed at 40%

This would create an Income Tax liability of approximately £2,746 on the freelance profit before taking account of any other personal circumstances, pension contributions, Gift Aid donations or tax adjustments.

This can create an unpleasant surprise if no money has been set aside during the year.

Many side hustlers receive all their additional income gross, with no tax deducted at source. As a result, the first time they encounter the tax bill is when their Self Assessment calculation is completed.

Content creators: the rules are broader than you think

Influencers, creators and streamers often face tax issues that other side hustlers don’t. Many assume tax only applies when cash changes hands but that is not necessarily the case.

HMRC’s guidance makes clear that creator income can include not only cash payments but also gifts, products or services received in exchange for promoting products or creating content online.

For example, if a beauty influencer receives:

• £700 in advertising revenue
• £300 worth of products they are allowed to keep
• £200 from platform monetisation

their total taxable income may be £1,200 rather than £900.

Creators should also maintain records of:

• Brand agreements
• Affiliate income
• Advertising revenue
• Gifts and product samples
• Event attendance benefits
• Platform payment statements

The days when online earnings flew under HMRC’s radar are rapidly disappearing.

Online sellers need to understand platform reporting

Since new international reporting rules were introduced, many digital platforms are now required to collect and share seller information with tax authorities. Reporting requirements can apply where users exceed certain transaction or income thresholds.

This has led some people to assume they automatically owe tax if they sell online, but that’s not the case.  The reporting rules do not create a new tax charge. Instead, they give HMRC greater visibility of activity taking place through online platforms – being reported by a platform and being taxable are not the same thing.

Someone selling old personal possessions at a loss will usually be in a very different position from someone regularly sourcing stock to resell for profit.

The key question remains whether the activity amounts to trading, produces taxable income or gives rise to a taxable gain.  Where an activity resembles a business, HMRC is increasingly likely to have visibility of it. This is where good record-keeping becomes essential.

Don’t forget national insurance

Income tax is not the only consideration.  Depending on profit levels, self-employed side hustlers may also need to pay National Insurance contributions.

For the 2025/26 tax year, Class 4 National Insurance is generally payable on self-employed profits above £12,570. The rate is:

• 6% on profits between £12,570 and £50,270
• 2% on profits above £50,270

For example, someone generating £20,000 of self-employed profit would pay Class 4 National Insurance on £7,430 (£20,000 less £12,570). At 6%, this would produce a National Insurance liability of approximately £446.

While the rules have changed in recent years, National Insurance can still form a significant part of the overall liability for those generating meaningful profits through self-employment.

This is another reason why calculating likely liabilities early can help prevent surprises later.

Expenses: what can be claimed?

A common mistake is failing to claim legitimate business expenses.

Allowable expenses may include:

• Platform fees and commissions
• Website costs
• Advertising and marketing
• Equipment used for the business
• Professional subscriptions
• Software subscriptions
• Phone costs used for business purposes
• Postage and packaging
• Business insurance

The key principle is that costs must be incurred wholly and exclusively for business purposes.  Where a cost has both personal and business use, such as a mobile phone contract, internet connection or home office expenses, only a reasonable business proportion should normally be claimed. Keeping receipts and digital records throughout the year can significantly simplify tax reporting and potentially reduce the final tax bill.

Practical steps to take before the next tax deadline

If you’ve earned side hustle income during the tax year, now is the time to get organised.

A practical checklist includes:

• Calculate your total side-hustle income

Remember to use gross income, not profit, when assessing whether the £1,000 trading allowance threshold has been exceeded.

• Gather records now

Collect:

• Platform statements
• Invoices
• Bank records
• Expense receipts
• Payment processor reports

Waiting until January often turns a simple exercise into a stressful one.

• Estimate your tax position early

Understanding your likely liability months before payment is due gives you time to budget appropriately.

• Register for Self Assessment if required

New taxpayers often leave registration too late. HMRC requires individuals who need to complete a tax return to register in advance and obtain a Unique Taxpayer Reference (UTR).

• Set money aside regularly

A separate savings account for tax can prevent cashflow issues when payment deadlines arrive.

• Seek professional advice where income is growing

Many side hustles start casually but quickly evolve into substantial businesses. The earlier proper tax planning is undertaken, the easier it becomes to manage growth efficiently.

Final Thoughts

The UK’s side hustle economy shows no signs of slowing down. For many people, additional income streams provide flexibility, financial security and even the foundation for future businesses.  But individuals must be aware of the tax compliance responsibilities associated with this activity.

The most common tax problems we see are not deliberate non-compliance. They arise because people simply don’t realise what counts as taxable income, misunderstand the £1,000 trading allowance, or fail to appreciate how a side hustle interacts with their main employment income.

By understanding the rules, keeping accurate records and planning ahead of filing deadlines, side hustlers can focus on growing their income without facing unexpected tax bills or penalties later on.

Talk to the team

If you think you may be facing tax implications from additional income generated through side hustles, please do contact our team for expert advice.  We can help you calculated and prepare for any forthcoming liabilities, giving you peace of mind that you are financially ready for the year ahead.

All information correct at time of going to print/live and on the best knowledge and understanding of the author at the time. This article is for general information only and does not constitute financial advice or recommendations for individual circumstances. No responsibility is taken for any actions taken on the base of the information within this article. For information of users: This material is published for the information of clients. It provides only an overview of the regulations in force at the date of publication, and no action should be taken without consulting the detailed legislation or seeking professional advice. Therefore no responsibility for loss occasioned by any person acting or refraining from action as a result of the material can be accepted by the authors or the firm.