Whether you're selling on Etsy, doing freelance work, driving for Uber, or renting a spare room, HMRC wants to know about it. Here's when you need to pay tax on your side income — and when you don't.
The £1,000 Trading Allowance
Good news first: if your total side income is under £1,000 per year, you don't need to do anything. The trading allowance means the first £1,000 of self-employment income is completely tax-free with no need to register or file.
Under £1,000/year?
No registration needed. No tax return. No tax to pay. The £1,000 trading allowance covers it automatically.
Over £1,000 — What You Need to Do
If your side income exceeds £1,000 in a tax year, you must:
- Register as self-employed with HMRC (within 3 months of your first earnings)
- File a Self Assessment tax return each year by 31 January
- Pay income tax on your profits (revenue minus allowable expenses)
- Pay National Insurance (Class 2 and Class 4)
How Much Tax Will I Pay?
Your side hustle profits are added on top of your employment income and taxed at your marginal rate. If your salary already uses your personal allowance, every pound of side income is taxed from the first penny.
Example: £35,000 salary + £5,000 side hustle
Your salary uses your personal allowance and puts you in the basic rate band. Your side hustle profits are taxed at:
Income tax: 20% = £1,000
Class 4 NI: 6% = £300
Tax on side hustle: £1,300 (keeping £3,700)
What Expenses Can I Claim?
You can deduct "wholly and exclusively" business expenses from your income before calculating tax. Common deductions include materials and supplies, equipment and tools, software subscriptions, marketing and advertising, travel for business purposes, a proportion of your phone and internet, and home office costs (simplified at £6/week or actual costs).
The Rent a Room Scheme
If your side income is from renting a spare room, you get a separate £7,500 tax-free allowance under the Rent a Room scheme. This is on top of the £1,000 trading allowance.
Key Deadlines
5 October: Register for Self Assessment if you're newly self-employed. 31 January: File your tax return AND pay any tax owed. 31 July: Second payment on account (if applicable).
Calculate your self-employment tax
Self-employed calculator →