Side Hustle Tax Made Simple: Your Guide to Self-Employment in the UK

Pursuing a side hustle can be rewarding, whether you're freelancing as a photographer, running an Etsy shop, or creating content as an influencer. However, if you're earning from these activities, there's an important question to ask—do you need to register as self-employed in the UK?

Registering as self-employed is essential for staying compliant with HMRC (HM Revenue & Customs) and avoiding penalties, but it can also unlock benefits like claiming allowable expenses. This guide breaks down what you need to know about UK self-employment registration, tax compliance, and when it's time to take the leap.

What Does It Mean to Be Self-Employed?

Being self-employed means you work for yourself and manage your income independently, rather than receiving a regular salary from an employer through PAYE (Pay-As-You-Earn). This shift often comes with additional responsibilities, like handling your own taxes and National Insurance Contributions (NICs).

Examples of Self-Employment:

• Freelance photographers offering event shoots or product photography services.
• Social media influencers earning through sponsorships, ad revenue, or brand deals.
• Ecommerce sellers managing shops on Etsy, eBay, or other platforms.
• Creative professionals like writers, graphic designers, or illustrators working on a freelance basis.
• Fitness trainers providing one-on-one or group classes.

If your activity generates income, HMRC likely considers you self-employed.

When Do You Need to Register as Self-Employed?

Understanding registration thresholds and guidelines is key to staying compliant. Here’s when you need to register your side hustle with HMRC:

1. Exceeding the £1,000 Income Threshold

If your side hustle earns over £1,000 in a tax year (from 6 April to 5 April the following year), you are required to register as self-employed. For instance, a freelance graphic designer earning £2,500 annually must register with HMRC.

2. Earning Less but Benefiting from Registration

Even if you earn less than £1,000 annually, you might still benefit from registering. Registering lets you claim allowable business expenses, reducing your taxable income.

💡 Example: A part-time artist earning £800 from selling prints could offset the costs of art supplies or online marketing by registering.

Pro Tip: Always keep detailed records of your income and expenses, even if you don’t formally register. Good bookkeeping can be a lifesaver for future tax calculations.

Why You Shouldn’t Ignore Registration

Failing to register as self-employed can lead to complications, including financial penalties and increased scrutiny from HMRC.

1. Penalties for Non-Compliance

HMRC can impose fines and add interest to unpaid taxes if you fail to declare taxable income.

💡 Example: A YouTuber earning money from ad revenue could face fines for neglecting to register and declare their income.

2. Risk of Audits

HMRC uses a range of tools to identify undeclared incomes—whether it's through PayPal transactions, bank transfers, or sponsorship deals.

💡 Example: A wedding photographer who doesn’t declare earnings could be flagged for an audit if discrepancies arise.

Registering as self-employed ensures your side hustle operates legally while avoiding these risks.

How to Register as Self-Employed in the UK

Fortunately, registering with HMRC is a simple process you can complete online. Here's a quick step-by-step guide:

1. Sign Up for Self-Assessment
   Visit the HMRC Self-Assessment registration page and create an account. You’ll receive a Unique Taxpayer Reference (UTR) number.
2. Track Income and Expenses
   Use tools like accounting software or spreadsheets to organise your earnings and expenses. This ensures you can submit accurate figures when preparing your tax return.
3. Submit Annual Tax Returns
   Each year, you'll detail your income, allowable business expenses, and tax-deductible allowances through your Self-Assessment tax return.

💡 Example: A personal trainer earning £10,000 annually can deduct gym rental fees and advertising costs when submitting their return.

Tax Responsibilities of Self-Employment

Once registered, it’s crucial to understand your tax liabilities as a self-employed individual.

1. Income Tax

You are taxed on your profits, or total income after allowable expenses.

💡 Example: A freelance web designer earning £18,000 annually but spending £3,000 on equipment will only be taxed on £15,000 of profit.

2. National Insurance Contributions (NICs)

Most self-employed individuals pay two types of NICs:

• Class 2 NICs (about £3.45 per week for profits above £6,725/year).
• Class 4 NICs (9% for profits over £12,570/year).

💡 Example: An influencer earning £20,000 annually will likely pay both Class 2 and Class 4 NICs.

3. Allowable Business Expenses

These deductions can significantly lower your taxable income. Common expenses include:

• Office equipment, like laptops or software.
• Advertising, including website costs or professional photography.
• Travel, such as transport to job sites or meetings.

For more information, check HMRC's business expenses guide.

Exceptions When You May Not Need to Register

There are cases where self-employment registration might not be required:

1. Hobby Income

If your activity is solely for fun and not profit-driven, registration isn’t necessary.

💡 Example: Someone baking cakes for friends or posting non-monetised TikToks wouldn’t need to register.

2. Occasional Low Earnings

Earnings under £1,000 annually from occasional activities, like selling crafts at a fair, typically don’t require registration.

Still, keeping records of these low-income activities is a good idea, especially if they begin to grow.

Stay Compliant, Save Money

Navigating UK self-employment registration and tax compliance doesn’t have to be overwhelming. By understanding when and how to register, you’ll not only stay on the right side of HMRC but can also save money with tax-deductible expenses.

If you need tailored advice, Virtue Accountants can help. Our team specialises in supporting freelancers, side hustlers, and small business owners with expert tax and accounting services. Contact us today to get personalised support that makes managing your side hustle finances simple.
 

‍