Table of contents
Table of contents
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 help get you started with a side hustle.
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 might give the game away.
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.
The fact that some of your earnings come from a side hustle doesn’t really make any difference to HMRC, as long as you pay tax on everything 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 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.
Once your total combined income from self-employment and “other miscellaneous activities” is 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.
Most 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.
All businesses need up-to-date, accurate records which show the money they earn and make. It’s particularly important to keep good records if you have a side-hustle so that you know where your income comes from, and what you’ve already paid tax on. You don’t want to be taxed twice!
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.
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.
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:
Telling HMRC about the money you earn and spend on the business is extremely important because they use this information to work out how much tax you owe.
The type of tax reporting you need will depend on how you registered the business, so we explain the different types of tax return and when they’re due in a separate article.
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A content writer specialising in business, finance, software, and beyond. I'm a wordsmith with a penchant for puns and making complex subjects accessible.
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