Table of contents
Table of contents
With the cost-of-living soaring, many of us are looking to make a bit of extra cash in our spare time. After all, there’s more opportunity to earn money online than ever. But stop! Before you seize the day and rush off to turn your favourite hobby into a money making machine, it’s worth doing your homework, especially around bookkeeping and tax.
We’ve put this article together to get you started so you can concentrate on running your business.
A side hustle is basically something you do to earn additional income when you’re not working at your main job. For example, you may be a full-time office worker by day but in the evenings, you use Etsy to sell paintings you’ve made. The smudges of paint on your work keyboard screams arty side-hustler.
Or maybe you’re working part-time and have decided to fill in your hours by becoming a freelance writer. You might even be running multiple businesses, and your latest venture is a side hustle to your main self-employment!
The beauty of it is it doesn’t have to be anything like your day job. For example, you could be a construction worker of a weekday and a dog walker at the weekend. That’ll stop your fitness apps from telling you off.
In the eyes of HMRC, the fact that it’s a side hustle doesn’t really make any difference, because they’re more interested in taxable income and making sure you pay tax if you’re supposed to (they don’t get invited to many parties).
It’s why the amount you earn from your side hustle is so important. If your total earnings from any side-hustles or other miscellaneous income are under £1,000 in one tax year, it won’t be classed as taxable income thanks to what’s called the Trading Allowance. This means you won’t need to declare this income to HMRC, register as self-employed, or pay tax on it.
The only way you’ll know when you’ve gone over the £1,000 threshold is with accurate bookkeeping, because unfortunately this kind of thing doesn’t appear on your weekly horoscope. Once you’ve made more than £1,000 in one tax year, you’ll need to register your business for tax with HMRC.
The first step is to decide how your business will be structured. Many people running a side hustle will simply set up as a sole trader because it’s the quickest and easiest way of doing things. Some will opt for the limited company option instead, particularly if it’s hoped the business will grow from being a side hustle to something bigger. There are pros and cons to both depending on your situation, which is why it’s worth getting professional advice if you’re not sure.
If you do decide to run your side hustle as a sole trader, you’ll need to register for Self Assessment through your government gateway account, and submit tax returns telling HMRC about your earnings.
A Unique Taxpayer Reference (UTR) number will be sent out to you within 10 days of registering. It will arrive by post, and you’ll need it to so you can submit your tax returns online. So, guard it with your life! Within reason. You can always contact HMRC if you’re really stuck.
There are many reasons why it’s always good practice to keep up-to-date, accurate records when running your own small business or side hustle. We’ve covered some of the main ones below because we’re lovely and it’s our actual job.
As mentioned above, if your turnover is less than £1,000 a year from your side hustle you don’t need to pay any tax on it due to the Trading Allowance, or even declare it to HMRC. You’ll need to monitor your self-employed income so that you know where your earnings are in relation to the threshold. It’s easier to creep over the Trading Allowance than you may think!
Completing your Self Assessment tax return accurately is extremely important. Any errors can lead to you to paying more tax than you need to, and let’s face it, no-one wants to do that. Unless you’re a very rare side hustler that loves tax. Yikes.
There’s something worse than overpaying tax though (yes, believe us) and that’s underpaying tax. Even if you didn’t mean to it can land you in serious bother with HMRC. If discovered, you’ll not only need to pay the tax that you owe, but you’ll also need to pay interest and potentially a fine on top.
Maintaining a good bookkeeping regime means you’ll record exactly what money you’ve made and what your expenses are. This will be instrumental in helping you or your accountant work out what tax you need to pay.
Running a business costs money. Everything from buying stock, paying website costs, utility bills, running your car, forking out for postage, and paying out packaging costs all come into the mix, to name just a few. Knowing what your business spends, and where, can help you make much more effective decisions.
The good news is you can reduce your side hustle tax bill by claiming allowable expenses. This is another reason why it’s really important to keep a record of the things you’ve had to pay out for, and keep your receipts too.
Essentially, anything you need to buy for your side hustle business will reduce your profits, and because you pay tax based on your profits, not your income, it makes sense to make sure you claim everything!
Some of the costs you might be able to claim for if you run your side hustle from home include:
Bear in mind that you can’t write all your bills off as a whole (sadly!). You’ll need to apportion them to the actual time you spent working on your side hustle at home. How much you can claim will also be based on things like the number of rooms you’re using. You may be able to use HMRC’s simplified expenses system if you work 25 hours a month or more from home.
Learn more about using Pandle to make business accounting easier. Create an account today and decide what to do with all the extra time you get back.
A content writer specialising in business, finance, software, and beyond. I'm a wordsmith with a penchant for puns and making complex subjects accessible.
Create your account today, and decide what to do with all the extra time you get back. We hear Pilates is popular.
Live chat support
No card details required
Making Tax Digital compliant
