Skip to main content When does a side hustle become a business that you have to pay tax for?
Who doesn’t like making a little money on the side? Whether you’re selling off some old clothes, bringing new life to old furniture or crafting handmade items as a hobby, it’s a nice boost to have that trickle of cash coming in. But you might not consider your side hustle to be a serious business.
Unfortunately, it doesn’t matter whether you’re going all in - the real question is whether HMRC considers it a business. If they do, you’ll need to get your head around tax returns and claiming expenses - or risk a big fine. Don’t worry, we’re here to clear up the rules on side hustles and tell you exactly when you have to worry about paying more tax.
When do I have to start paying tax on my side hustle?
Plenty of people won’t have to pay tax on their second-hand and homemade sales - thanks to the ‘trading allowance’. As long as you’re selling under £1,000 worth of goods or services a year, you won’t have to pay tax on those.
Note: The trading allowance is for income, not profit - if you get paid more than £1,000, you’ll have to declare it, even if your actual profit is lower.
It’s a good idea to keep a record of your side hustle income and expenses, even if you don’t expect to earn over £1,000 - you don’t want to be surprised by a big sale late in the tax year and suddenly have to scramble to find receipts and sales records.
If you earn over £1,000 a year from your side hustle, you’ll need to check whether what you’re selling counts as trading. HMRC has a framework for this, which is called ‘badges of trade’.
A good rule of thumb is if you’re occasionally selling old or unwanted items, you’re unlikely to be trading. However, if you buy, alter or produce goods specifically to sell, HMRC is more likely to consider you to be trading. HMRC gives some handy examples in this information sheet which can give you a steer. If you’re unsure whether your sales count as trading, you should check with an accountant or bookkeeper.
What about one-off sales of items over £6,000?
If you have sold one or two goods this year for over £6,000, for example a piece of jewellery or an antique, you may need to report this to HMRC and pay Capital Gains Tax. Some types of items are exempt, so you shouldn’t need to report selling your personal car or your house.
If you need to report sales over £6,000, you can either file a Self Assessment tax return or use the ‘real-time’ Capital Gains Tax service.
Note: If you pay Capital Gains Tax when you sell an item, you won’t also have to pay Income Tax on it.
Do I have to file a tax return if I sell on a big online marketplace? Don’t they share my income with HMRC?
If you earn over £1,000 in a tax year, you will need to submit a Self Assessment tax return and pay tax on your profits.
Since 2024, ‘online marketplaces’ have had to collect seller income and share this with HMRC. These are defined as “any digital platform that handles and enables the sale of goods and services from individuals and/or businesses to customers”. Think eBay, Vinted and Etsy, as well as food delivery, taxi services and short-term accommodation.
However, this is mainly used by HMRC to assess whether sellers may need to pay tax on their side businesses. You will still need to file a Self Assessment return as this sums up your total income - including income from employment, property, pensions, savings interest - so that HMRC can accurately calculate your tax bill.
What happens if your side hustle income reaches £20,000?
If your side hustle keeps growing, firstly - congratulations! Secondly, you might need to report your income to HMRC using a new system: Making Tax Digital (MTD) for Income Tax.
You can learn more about MTD for Income Tax and whether you’ll be expected to comply on our guide hub.
How to keep on top of your side hustle finances
If you have a growing side hustle, you might want to consider getting a business bank account to keep better track of your income.
A business account can give you extra tools to support your success, including getting FreeAgent’s accounting software for free with NatWest, Royal Bank of Scotland, Ulster Bank and Mettle business bank accounts.
As well as helping you track income and costs, FreeAgent calculates how much tax you owe and automatically fills out parts of your Self Assessment return. Try a 30-day free trial and find out how easy filing your tax return can be.
Originally published
Last updated
Disclaimer: The content included in this blog post is based on our understanding of tax law at the time of publication. It may be subject to change and may not be applicable to your circumstances, so should not be relied upon. You are responsible for complying with tax law and should seek independent advice if you require further information about the content included in this blog post. If you don't have an accountant, take a look at our directory to find a FreeAgent Practice Partner based in your local area.
