Starting a side hustle can feel like opening a door to financial freedom. Whether you're designing logos in your spare time, selling handmade crafts, or driving for a delivery app, that extra income can make a real difference to your monthly budget. But here's the thing that catches many people off guard: HMRC wants to know about your side earnings too.
Don't worry though sorting out your side hustle taxes isn't as scary as it might seem. Once you know the rules and get organised, you'll be managing your freelance finances like a pro.
Let's break down everything you need to know about side hustle tax returns in the UK, from figuring out if you need to register to claiming every expense you're entitled to.
Not every pound you earn outside your main job triggers tax obligations. HMRC distinguishes between different types of income, and understanding these differences affects how much side hustle tax return you'll pay.
The key question HMRC asks is whether you're "trading" or just making occasional sales. This distinction matters because trading income gets taxed differently and comes with different obligations.
HMRC looks at several factors to determine if you're trading:
If you're a graphic designer taking on weekend projects, you're almost certainly trading. But if you sold your old guitar on eBay, that's probably just a casual sale.
Selling your car doesn't make you a trader, but buying cars to fix up and resell might. The pattern matters more than individual transactions. If you're consistently earning money from similar activities, HMRC will likely consider it trading income.
A side hustle is any activity that earns you extra income outside of your main job. Popular examples include:
It’s important to remember that any income from these activities is taxable, even if you're already paying tax through your day job. This includes earnings from side hustles, freelancing, or any other form of additional work. Failing to report this income can lead to penalties or issues with tax authorities, so it’s important to keep accurate records and declare all earnings, no matter how small they might seem.
If your side hustle generates more than £1,000 per year (the HMRC trading allowance), you’re required to register for Self-Assessment and declare your earnings. Here’s how to tell if you need to register:
Once you've determined you need to register, the process is straightforward but has strict deadlines.
You must register for self-assessment by October 5th following the end of the tax year when you first needed to complete a return. Miss this deadline, and you'll face automatic penalties even if you don't owe any tax.
For example, if you started earning over £1,000 from freelancing in the 2024/25 tax year (which ended April 5, 2025), you needed to register by October 5, 2025.
Understanding what you'll actually pay helps you plan and avoid cash flow problems when side hustle tax return bills arrive.
Your side hustle profits get added to your other income and taxed according to the same bands as your salary.
For the 2025/26 tax year:
If you earn £35,000 from your day job and make £8,000 profit from freelancing, your total taxable income becomes £43,000. The freelance income gets taxed at 20% because it sits within the basic rate band.
But if your day job already puts you in the higher rate band, your side hustle profits get taxed at 40% from the first pound.
For 2025/26:
National Insurance contributions aren't just a tax – they're buying you entitlements to state benefits and pensions. You need 35 years of contributions for a full state pension.
You must register for VAT if your taxable turnover exceeds £90,000 in any 12-month period. Once registered, you'll need to use Making Tax Digital compatible software.
If you have a student loan, you'll need to make additional repayments on your self-employed income above the threshold (£27,295 for Plan 2 loans in 2025/26).
If your side hustle grows into a proper business with employees, you'll need to consider auto-enrolment pension obligations.
Claiming legitimate business expenses reduces your taxable profit and saves you money. The key is understanding what qualifies and keeping proper records.
HMRC allows you to deduct costs that are "wholly and exclusively" for business purposes.
HMRC offers two approaches:
Simplified method: Claim a flat rate based on hours worked from home (£10-£26 per month depending on hours).
Actual cost method: Calculate the proportion of your home used for business and claim that percentage of household costs.
Apportioning rent, utilities and broadband: If you use the actual cost method, you can claim a percentage of rent, council tax, utilities, home insurance, and broadband bills.
Claiming items over £200: Items costing more than £200 that you'll use for several years might qualify for capital allowances, including high-end computers, professional cameras, and expensive software.
Annual investment allowance rules: The Annual Investment Allowance lets you deduct the full cost of qualifying equipment in the year you buy it, up to £1 million per year.
Staying on top of your finances is critical to managing your side hustle taxes efficiently. Here are some tips:
1. Record Keeping: Keep receipts and maintain thorough records of all income and expenses. Digital tools like QuickBooks or a simple spreadsheet can make this process easier.
2. Separate Finances: Open a dedicated business account to streamline bookkeeping and separate business from personal finances. This makes tracking expenses and invoicing much easier.
3. Know Your Deadlines: Mark important tax dates, including:
Learning from others' mistakes can save you money and stress. Here are the most frequent errors we see.
1. Not Setting Aside Money for Taxes: One of the most common mistakes is spending your income without reserving funds for tax bills. A smart rule of thumb is to set aside 20% to 30% of your earnings for taxes.
2. Missing Deadlines: Filing late results in penalties starting at £100, even if you don't owe any tax.
3. Forgetting to Claim Expenses: Neglecting to claim allowable expenses means paying unnecessary tax. Always document what you spend on your side hustle.
Real-Life Example: A digital marketer underestimated their tax bill because they failed to record small but regular payments from clients. This resulted in an unexpected tax bill of £2,000.
Managing side hustle taxes while running your business and maintaining a day job can feel overwhelming. Professional support can save you time, money, and stress while ensuring you stay compliant.
Personalised Expense Reviews: Many freelancers miss legitimate deductions simply because they don't know what qualifies. Our team reviews your specific situation to identify overlooked expenses and ensure you're claiming everything you're entitled to.
At Virtue Accountants, we'll help you understand which expenses work best for your business type, whether you should use simplified or actual cost methods for home office expenses, and how to structure your record-keeping for maximum tax efficiency.
End-to-End Self-Assessment Support: From registration through to submission, we handle your entire self-assessment tax return process. This includes:
Our fixed-fee approach means you know exactly what you'll pay, with no surprises or hourly billing.
Ongoing Compliance & MTD Advisory: Tax obligations don't end with your annual return. We provide year-round support including:
Your side hustle represents your entrepreneurial spirit and hard work. Don't let side hustle tax return confusion hold you back from pursuing your goals. With proper planning and the right support, you can manage your obligations efficiently while maximising your take-home profits.
Whether you're just starting out or looking to optimise an established side business, remember that professional advice often pays for itself through tax savings and peace of mind. The key is getting started with good habits and systems that will serve you well as your business grows.
Ready to take control of your side hustle finances? Get in touch with our team for personalised advice that fits your specific situation and goals.
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