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Listen nowDo you need to pay tax on your 'side hustle'?
If you're looking to make extra money from your hobby or an extra job, then you
might need to file a self-assessment tax return
Side hustles - jobs you take on in addition to your main job - have become a popular way to boost income, but they could also land you with a tax bill.
One in five adults in the UK have started a second job or turned a hobby into a lucrative career since March 2020, according to research from Aviva.
Of these, almost one in six claim to earn upwards of £1,000 a month from their new venture, and just under two thirds (63%) of those who started a side hustle during the Covid pandemic are still active in them today.
As the cost of living crisis continues, even more people might be looking for ways to top up their earnings by taking on extra work.
Here, Which? explains what tax you may owe, the rules around income tax and how to pay the bill.
Do I need to pay tax on my extra earnings?
A lot of 'side hustles' tend to be outside of regular employment; according to Aviva's research, the most popular side hustle is selling handcrafted products.
This counts as self-employed income. You won't need to declare what you earn if you make less than £1,000 during a tax year (6 April-5 April), as it can be covered by the trading allowance. This applies to income from activities such as selling goods or services.
Similarly, if your additional income is made from monetising your property in some way - like renting your driveway - up to £1,000 can be covered by the property allowance.
If you earn more than this in a year, then it's your responsibility to declare your income to HMRC via a self-assessment tax return.
- Find out more: 5 types of income you mustn't miss on your tax return
How to register for self-assessment
If you've never filed a tax return before, then you'll need to register for self-assessment with HMRC.
There are different options depending on whether you're wholly self-employed, or not. Once registered, you'll be posted a 10-digit Unique Taxpayer Reference (UTR) number, which you will need to set up your online tax account and to sign up for self-assessment.
If you think you need to file a tax return for 2021-22, the official deadline to register for self-assessment was 5 October. If you haven't done it yet, don't worry - but do try to sign up as soon as you can. The process can take a while; it usually takes 10 working days to receive your UTR number so if you leave it too late, you may rush and make mistakes - or worse, end up filing and paying the bill late.
When you come to actually filling in your tax return, remember that you'll need to include information about all sources of income - including your side hustle, your employment and anything else, such as rental or pension income.
Make sure you keep a record of what you earn, as well as invoices, receipts and bank statements.
- Find out more: How to fill in a self-assessment tax return
Don't miss the deadlines
If you fail to file your online tax return, and pay the tax you owe, by 31 January you could face some hefty fines.
Failure to file your return by 31 January will incur an initial £100 penalty. After three months, this increases to £10 per day (for up to 90 days). Further penalties are triggered if your return is more than six or 12 months late.
On top of these, you’ll likely also face late payment charges if you haven't paid your tax bill by 31 January. You’ll be charged daily interest (at the Bank of England base rate plus 2.5%) from the date the payment was due. There may be further penalties if you're several months late paying your tax bill.
If you have any concerns about submitting your tax return or paying your bill, contact HMRC.
Submit your tax return with Which?
If you need to submit a tax return for money earned during 2021-22 – which is due by 31 January 2023 – the Which? tax calculator can help you tot up your tax bill, and suggests expenses and allowances that you might have forgotten.
You can declare income from a range of sources, and even use the tool to submit your return directly to HMRC once you're satisfied that everything's been included.
