Starting an online side hustle is an amazing way to earn some extra income while doing what you love. It’s a chance to turn a passion into a profitable venture right from the comfort of your bedroom. What better way to make a little income on the side?
But then, there’s tax. There — we said it. Like shouting “boo!” in a library, the mere mention of the word is enough to send shivers down the spine, conjuring images of paperwork mountains and costly mistakes. Alas, paying tax is a fact of life.
The good news is that keeping your accounts in order isn’t as tricky as it sounds. It’s all fairly simple, really. In today’s blog we’ll explore some new tax rules outlined for 2024, from shifts in tax brackets to changes in deductions and credits, giving an overview of how these updates might impact you. You may even be able to save a little money along the way.
Embarking on an online venture can be rewarding in more ways than one.
According to research by Aviva, as many as one-in-five UK adults have started online side hustles since March 2020. The average post-pandemic side income sits at about £497 a month, with around 16% of these new projects now earning over £1,000 each month.
39% of respondents in the same Aviva study describe turning a genuine hobby and passion into an income stream. 30% state that the additional income was to help cover their own bills and expenses. 21% of new side hustlers, meanwhile, are aiming for more than just a top up, with the ultimate goal of quitting the desk job and becoming their own boss.
❝ Keep in mind that your side hustle, no matter how small, may still be a business in the eyes of tax authorities. This means that any income you generate may be subject to tax. ❞
Some side hustlers assume that if their side gig isn’t their main job — or if they haven’t been trading for a full year yet — that they don’t need to worry about taxes. Sadly, that’s not the case. Keep in mind that your side hustle, no matter how small, may still be a business in the eyes of tax authorities. This means that any income you generate may be subject to tax.
Tax laws are changing all the time and it can be difficult to keep up. As we’ll get into, some of the tax information for last year is about to go out of date (if it isn’t already). Understanding how to handle your taxes and self-assessment is key to avoiding stress and penalties.
In this guide, we’ll offer some tips on where to look for updates and how to understand what they mean for you. We’ll break down what counts as taxable income for your side hustle and how to figure out what you owe. Keeping informed is also key to staying sure you’re taking advantage of all the opportunities to save.
Be sure to check the gov.uk website for official guidelines. Remember that you should always seek tax advice from a qualified professional.
The £1,000 Threshold
To start on a positive note: You probably don’t need to make a declaration if you’ve made less than £1,000.
This one isn’t a new rule for this year. Tax-free allowances for property and trading income came into effect back in April 2017. If your annual gross trading income is under £1,000, it may be the case that you don’t need to tell HMRC. However, be sure to double check the government’s official website, as there are some situations in which you’d still need to register for a Self Assessment and declare your income on a tax return.
Even if you make less than £1,000, you should always keep a record of your income. Good record keeping will make it easier to comply with tax rules. There’s also a variety of deductions and credits you can take advantage of — more on that later.
But what if you are making more than a grand a year through your online gig?
First of all, congratulations! It’s great to see that hard work is paying off. If you run a part-time business online and your gross annual taxable income is more than £1,000, then you’ll need to inform HMRC.
You must register for Self Assessment by 5 October in the following tax year. This is true whether you work for yourself, own your own small business, or have money coming in from a number of avenues. Given that £1,000 in a year only equates to around £80 per month, there’s a good chance that you’ll be above this threshold.
Tax rates for 2024
The tax year runs from April 6 to April 5, the following year. Everyone gets a tax-free Personal Allowance of £12,570, which decreases after £100,000 income. Employees working for a company would usually pay taxes on income (via PAYE), but this isn’t the case of an online side hustle.
Estimating your taxes means figuring out roughly how much you need to pay. You’ll look at what you’ve earned, what you can deduct, and then use that info to work out what you owe. If you’re doing this throughout the year, you can avoid nasty surprises when the bill comes due.
Here’s how it breaks down based on earnings:
☐ Up to £12,571: 0% – Personal Allowance
☐ £12,571 to £50,270: 20% – Basic Rate
☐ £50,271 to £125,140: 40% – Higher Rate
☐ Over £125,140: 45% – Additional Rate
Remember: Income tax bands are based on earnings across all sources of income. So while your online gig might only be bringing in £10k a year, if you’re on a £25k salary in your main job, that’s £35k in total — and you’d be liable to pay tax on the remainder after your Personal Allowance. (This is a simplification, though, as we’re not taking into account National Insurance contributions and other factors.)
Register as a sole trader
If you’re selling products through marketplaces like Amazon or Etsy, you’ll normally operate as a sole trader, without needing to create any formal company. Nevertheless, be sure to check with Companies House and all the good resources on the gov.uk website for all the official advice on this and all other aspects of starting a business in the UK.
If you earn more than £1,000 per year from a side hustle, your first step should be to register for Self-assessment.
✓ Choose your business structure (sole trader or limited company) based on research.
✓ Inform HMRC of your self-employment status via the gov.uk website.
✓ Register for Self Assessment to handle your taxes.
✓ Wait for your Unique Taxpayer Reference (UTR) sent by post after registration.
✓ Use your UTR to create a Government Gateway account for online tax submissions.
Becoming a sole trader is a common choice for those earning from side hustles as it’s a straightforward process that doesn’t cost anything. Over half of UK’s small businesses opt for this route. But remember, as a sole trader, any business debt falls on your shoulders. To get started, you need to sign up for Self Assessment on the GOV.UK website before 5 October in your second tax year. You’ll then annually report your income and claimable expenses through a tax return. Missing the 31 January online submission deadline could land you a £100 penalty.
You’ll need to declare your earnings and handle income tax via a Self Assessment tax return to HM Revenue and Customs (HMRC). Remember to apply VAT to your sales and report it. Maintaining precise records of your income and expenses is key for accurate tax submissions.
Self-Assessment Tax Return
Filling in a self-assessment tax return online is pretty straightforward. First, you need to register for self-assessment on the HMRC website. There are just a couple of steps to provide personal details and get the account set up. Once registered, HMRC will send you a Unique Taxpayer Reference (UTR) and you can then set up your online account.
When it’s time to file, log in to your HMRC account and fill out the self-assessment form. It’s divided into sections that cover different types of income and deductions. Make sure you have all the necessary information, including your income details and any expenses you’re claiming. If you’re unsure about any part, HMRC provides guidance notes and there are many online resources to help out.
Once you’ve filled out the form, double-check your answers, submit it, and pay any tax you owe. Remember, there are deadlines for submitting your return and paying your tax, usually the 31st January following the end of the tax year. Missing these can result in penalties, so it’s important to stay on top of your dates.
If you find all this a bit daunting, consider hiring an accountant or using a tax return service. They can help ensure everything is accurate and submitted on time.
Allowable expenses
When completing your self-assessment for HMRC, you’ll be able to claim deductions (or “allowable expenses”) on various costs. This might include a proportion of costs for heating, electricity, rent, Council Tax, or internet and telephone use, provided they are related to your business.
Claiming these deductions reduces your taxable income and can lower your tax bill.
HMRC may require evidence of your claims. Expenses must be solely for business purposes; if an expense is for both personal and business use, only the business portion can be claimed.
Hang onto all the paperwork that has to do with money you make and spend for your business. This means stuff like receipts for things you buy, records of sales you make, and bank statements. If you drive for your business, keep track of that too. Having all this stuff means you can claim everything you’re allowed to when tax time comes.
The UK government also offers a scheme called Small Business Rates Relief. You may be eligible if your small business only occupies one property.
New tax changes for 2024
New HMRC powers for digital platforms
One of the biggest new changes for 2024 is new regulation that requires digital platforms to share user information with HMRC. This means that if you’re using any digital platform to sell or provide services, your financial details will be more accessible to HMRC than ever before. Whether you’re listing a room on Airbnb or selling crafts on Etsy, these platforms may need to share your information.
Let’s imagine you’re a dropshipper on eBay, for example. If you earned below £1,000 annually, you wouldn’t typically need to declare this income. However, the new regulations might mean that even low-level sellers may find their details shared with the tax authorities. The new rules in 2024 mean that earnings are more transparent to HMRC, making it really important for side hustlers to keep accurate records and report their income correctly to avoid any legal issues.
This new rule came into effect on January 1st and, while it’s been informally described as a “Side Hustle Tax’ in some reports, it doesn’t actually create any new tax obligation for individuals. The HMRC has always had the ability to check bank accounts and other records. This move just takes it a step further. Those selling on these platforms, and who did not previously declare their income, may now find themselves on the HMRC’s radar.
The aim is to ensure tax compliance by making financial details from digital platforms available to tax authorities. This all goes to emphasise how important it is to register if you do earn over £1,000 through your side hustle. Fear not: it’s easy to fill in your Self Assessment Tax Return, and the tax man won’t take anything until you’re earning over £12,570 annually.
Changes to National Insurance Contributions
Starting 6th January 2024, the National Insurance rate went down from 12% to 10%. The rate will stay that way for the entire 2023/2024 tax year. This change will affect employers rather than those with a side hustler. For employees, it may mean a bit more money in the pocket each payday.
Side hustlers will however be affected by upcoming changes to NI Contributions for the self-employed in the UK. In April 2024, Class 2 National Insurance contributions, which are £3.45 a week at the moment for those earning over £12,570 a year, will be scrapped. This move is set to save sole traders around £179.40 annually. It’s a boost aimed at simplifying taxes for self-employed individuals and easing tax burden.
So, if you’re working for yourself, you can look forward to a little extra in your pocket next year. Keep this in mind as you plan your finances and consider how this change might benefit you. Remember that you need to pay at least 10 National Insurance contributions to qualify for the state pension, for example.
Income Tax Freeze
The government has decided to freeze income tax thresholds until 2028, meaning the point at which people start paying different rates of tax won’t increase.
While a tax “freeze” might sound like a good thing, that’s not really the case when it comes to income tax freezes. Unless you’re the tax man. Rather, the consequence of an income tax freeze is actually to create more taxpayers: as wages increase over time due to inflation or raises, people cross over into higher tax brackets.
According to projections, the freeze put in place this year will create 3.2 million extra taxpayers and make 2.6 million people pay higher rates, potentially raising an additional £25.5 billion a year by 2027-28. In a nutshell: more side hustlers will cross over the threshold and have to begin paying tax.
Minimum Wage Increases
From April 2024, the UK National Living Wage for workers aged 21 and over will rise to £11.44 per hour. For a full-time employee working 37.5 hours a week, that works out to a salary a little over £22k.
While this change is unlikely to directly impact those running a side hustle, as they typically set their own earnings, it’s a significant point for small business owners. Employers will need to adjust their budgets to meet the new wage requirements to be sure they comply with the updated regulations.
Changes to Capital Gains Tax
The UK is also adjusting rules for Capital Gains Tax (CGT) — that’s the tax on the profit when you sell something that’s increased in value, usually shares or things like second properties. The Annual Exempt Amount (AEA) is decreasing in 2024. For individuals, it’ll drop from £6,000 to £3,000, and for most trustees, from £3,000 to £1,500. This change means you might pay tax on smaller profits than before.
With these new limits, more people could end up paying CGT when they sell certain assets. It’s an important shift, especially if you’re thinking of selling something valuable soon. Planning ahead and possibly seeking advice from a tax expert could help you understand how these changes might affect your future sales and finances.
The ‘Making Tax Digital’ Scheme
One to earmark for the future, the UK government is set to introduce its new Making Tax Digital (MTD) program for Income Tax, a new program aimed at simplifying the tax system. From April 2026, sole traders and landlords earning above £50,000 will need to use MTD-compatible software to maintain digital records and submit tax updates. The threshold drops to £30,000 in April 2027.
This modern approach means no more annual tax returns. Instead, you’ll send quarterly updates to HMRC. MTD is designed to reduce errors and give you a clearer view of your tax obligations. If you’re below the income thresholds, you can stick to the current Self Assessment system. Certain exemptions apply, ensuring that everyone has fair access to the new system. Get ready to embrace a more streamlined, digital-first approach to managing your taxes!
Wrapping Up
From the changes in National Insurance Contributions and Capital Gains Tax to understanding the implications of the minimum wage increase for small business owners, there’s a lot to keep track of. Remember, whether you’re earning just over £1,000 or well beyond, registering with HMRC and keeping detailed records are essential steps. And while the tax landscape might seem daunting, with the right knowledge and preparation, you can ensure your side hustle not only complies with the latest rules but thrives.
Taxes can seem complicated, especially if you’re distracted with everything else going on with your business. If in doubt, be sure to seek the guidance of a proper tax professional — they’ll be able to help make sure you’re claiming all the right things and that you’re on the right track.
