Last Updated on 10/07/2025
UK side hustles
UK side hustles have become increasingly popular among individuals looking to supplement their income. Whether you’re selling handmade crafts on Etsy, offering freelance services, or running a small online business, understanding your tax obligations is crucial, especially once your sales exceed the £1,000 trading allowance threshold. This article covers side hustles, the trading allowance and tax returns, detailing when you need to submit a self assessment tax return.
How does the UK trading allowance work?
UK individuals have a £1,000 tax-free trading allowance, which allows them to earn up to £1,000 tax-free running a small side business. This means if your annual sales turnover (not profit) is £1,000 or less, you don’t need to report it to HMRC or pay tax on this income.
However, once your sales exceed £1,000 for the financial tax year (April 6th to 5th of April of the subsequent year), you may have to pay tax. You will also be required to register as self-employed with HMRC and submit an annual self assessment tax return.
Your tax obligations once your sales exceed the £1,000 threshold
When your side hustle turnover or sales exceed the trading allowance, you’re legally required to:
- Register as self-employed with HMRC
- Complete a self assessment tax return annually
- Pay income tax on your profits (sales minus expenses)
- Pay national insurance contributions if your profits exceed the national insurance threshold
Failing to declare this income can result in penalties and interest charges, so it’s important to make sure you are compliant from the start. You can check if you need to register for self assessment using the link below:
Check if you need to send a Self Assessment tax return – GOV.UK
Tax and national insurance liability
Basic rate taxpayers pay 20% tax on side hustle profits that exceed the trading allowance and the personal allowance. You will pay national insurance of 6% on taxable profits between £12,570 and £50,270. Taxable profits over £50,270 incur national insurance of 2%. Higher-rate taxpayers pay 40% tax, while additional-rate taxpayers pay 45% tax on profits that fall within the higher and additional-rate tax bands.
Deducting the trading allowance or business expenses?
You can choose between deducting the trading allowance of £1,000 from your sales or deducting allowable business expenses, but not both. The balance remaining is your taxable profit, and it’s important to understand how these calculations are made to determine which option is the most tax-efficient.
Examples of the trading allowance
The examples below illustrate the different tax outcomes between deducting the trading allowance and deducting allowable business expenses.
Aidan has a side business walking dogs during his lunch hour. He’s earned £1,200 (sales) this year and his only business expense is £20 on poo bags. The table below shows the tax liability if Aidan deducts the trading allowance compared with deducting the business expenses of £20.
| Trading allowance (TA) | Business expenses | |
|---|---|---|
| Sales of £1,200 | 1,200 | 1,200 |
| TA/business expenses | 1,000 | 20 |
| Taxable income | 200 | 1,180 |
| Tax due at 20% | 40 | 236 |
In this example, it is far more tax-efficient for Aidan to deduct the trading allowance, resulting in a tax liability of £20 as opposed to £236 if he deducts his business expenses.
Laura makes earrings and sells them on Etsy. She made sales of £3,000 in the current tax year, and her business expenses are £1,250.
| Trading allowance (TA) | Business expenses | |
|---|---|---|
| Sales of £3,000 | 3,000 | 3,000 |
| TA/business expenses | 1,000 | 1,250 |
| Taxable income | 2000 | 1,750 |
| Tax due at 20% | 400 | 350 |
In this example, it is more tax-efficient for Laura to deduct her allowable business expenses rather than the trading allowance, as this saves her £50 in tax.
Track your side hustle finances
It’s vital to track your side hustle finances so you can accurately estimate any tax and national insurance obligations. Maintaining records of your sales and business expenses is a legal requirement of being self-employed. Keeping accurate records of the following information will help you analyse your business performance and keep track of your tax liability:
- Income from all sales platforms
- Allowable business expenses
- Payment methods used
- Product or service performance
Calculating your sales figures
You need to ensure you are calculating your sales figures correctly for tax records. If you are selling goods online, the amount you receive on individual sales may have online platform and bank fees deducted.
For tax purposes, your sales figure is the selling price, not the amount you receive after platform and bank fee deductions. These fees are business expenses. You must add back any deducted fees to the amount you’ve physically received when calculating your sales figures for tax.
Side hustle sales figure example
For example, Lucy sold ten paintings, each with a sales price of £105. After online platform fees, she received £95 per painting. Lucy’s side hustle net income for the year is £950, and she assumes she does not need to complete a tax return as her income is below the trading allowance of £1,000. This is incorrect, as Lucy’s gross sales are £1,050, meaning she must submit a self assessment tax return.
Lucy should deduct the trading allowance from her sales, as this delivers a lower taxable income of £50 and a tax liability of £10 (assuming Lucy is a basic rate taxpayer). Deducting the business expenses (fees) of £100 results in a much higher taxable income of £950 and tax of £190.
How we can help with your side hustle
In our shop, we have a Side Hustle Tax Calculator spreadsheet that helps you estimate your tax and national insurance liability, whilst tracking your sales and business expenses.
The Excel spreadsheet helps you:
- Estimate your tax liability based on current UK tax rates
- Track all income sources across different sales platforms (Etsy, eBay, Amazon, etc.)
- Record business expenses
- Analyse sales performance by product category
- Monitor payment methods (PayPal, Stripe, bank transfers)
- Prepare for self assessment with organised financial figures
Potential tax changes
During their term or by the end of 2029, the current parliament aims to increase the threshold for submitting self assessment returns on trading income to £3,000. Tax will still be due on income over the £1,000 trading allowance threshold and will be declared to HMRC using a simplified online platform, in place of a full tax return.
Explained: HMRC’s new £3,000 Self Assessment threshold for side… | IPSE
Other resources:
Check if you need to tell HMRC about your income from online platforms – GOV.UK
Side hustles and tax in the UK: The £1,000 rule – Times Money Mentor
UK £1,000 Trading Allowance – Moneyquids
This article provides general information only and should not be considered professional tax advice. Tax regulations are subject to change, and individual circumstances vary. Please consult with a qualified tax professional for advice specific to your situation.
