Side Hustle Tax Guide UK
By Mustafa Bilgic (MB) • Last updated: February 2026 • 14 min read
Contents
The UK side hustle economy has grown dramatically in recent years. From freelancing on Upwork to selling crafts on Etsy, driving for Deliveroo to renting a room on Airbnb — millions of people earn income outside their main employment. But many are unaware of their tax obligations.
HMRC has significantly increased its focus on the side hustle economy. From January 2024, digital platforms are legally required to report seller income to HMRC. This guide explains exactly what you need to know to stay compliant in 2025.
The £1,000 Trading Allowance Explained
The trading allowance gives every individual in the UK £1,000 of tax-free income from self-employment, casual work, or providing goods or services each tax year. It was introduced by HMRC to simplify tax for people with small amounts of additional income.
How the Trading Allowance Works
| Gross Side Hustle Income | What You Do | Tax Due |
|---|---|---|
| £1,000 or less | Nothing — fully covered by allowance | £0 |
| Over £1,000 (claim allowance) | Deduct £1,000 from gross income, tax the rest | On profit above £1,000 |
| Over £1,000 (claim actual expenses) | Deduct all allowable expenses from income | On net profit |
If your gross trading income exceeds £1,000, you choose whichever method gives you the lower tax bill. If your actual allowable expenses exceed £1,000, claim actual expenses. If your expenses are below £1,000, claim the allowance instead.
The trading allowance does not apply to property income (there is a separate property allowance of £1,000), employment income, or income from a company you own.
When to Register with HMRC as Self-Employed
You must register with HMRC for Self Assessment if:
- Your self-employment income exceeds £1,000 in a tax year (after the trading allowance)
- You are a partner in a business partnership
- You receive income from abroad
- Your total untaxed income (from all sources) is above a certain threshold
To register, you can use the HMRC online service at gov.uk. You will need your National Insurance number and basic personal details. HMRC will send you a Unique Taxpayer Reference (UTR) within 10 working days (21 if overseas).
Do I Need to Tell My Employer?
Your employment contract may contain clauses about secondary employment. Always check your contract before starting a side hustle. In most cases, HMRC will not automatically tell your employer about your self-employment — but your tax code may change if adjustments are needed, which could alert payroll.
Self Assessment Deadlines 2024/25
If you miss the 31 January online filing deadline, you receive an automatic £100 penalty even if no tax is owed. Additional penalties apply for returns more than 3, 6, and 12 months late. Interest applies to late tax payments at the HMRC rate (currently Bank of England base rate + 2.5%).
Payments on Account
If your Self Assessment tax bill exceeds £1,000, HMRC requires you to make advance payments towards the following year's tax bill. These are split into two equal payments — one by 31 January (alongside the previous year's balance) and one by 31 July. Each payment is 50% of the previous year's total tax bill.
Expenses You Can Claim for Your Side Hustle
You can deduct allowable business expenses from your trading income to reduce your taxable profit. Expenses must be incurred wholly and exclusively for business purposes. Mixed-use expenses (like a phone used for work and personal calls) can be apportioned.
| Expense Category | Examples | Notes |
|---|---|---|
| Home Office | Rent, mortgage interest, heating, electricity, broadband | Apportioned by rooms used and hours worked. HMRC flat rate: £10/month (one room) to £26/month (3+ rooms) |
| Equipment | Laptop, camera, tools, machinery | Can claim full cost or Annual Investment Allowance |
| Vehicle & Travel | Mileage, public transport, parking | 45p/mile for first 10,000 miles, 25p/mile thereafter. Keep detailed mileage log |
| Marketing | Website, ads, business cards, social media tools | Wholly for business promotion |
| Professional Fees | Accountant, solicitor, professional memberships | Must be business-related |
| Subscriptions | Software, industry publications, platform fees | Must be exclusively for business |
| Stock & Materials | Goods for resale, craft materials, ingredients | Cost of goods sold |
| Training | Courses to improve existing skills | Not for acquiring a new qualification |
| Insurance | Professional indemnity, public liability | Business insurance only |
| Bank Charges | Business account fees, PayPal fees, Stripe fees | Transaction costs are deductible |
Home Office Claim: Simplified vs Actual Method
HMRC offers a simplified flat-rate method for home office expenses:
| Hours worked at home per month | Monthly flat rate |
|---|---|
| 25–50 hours | £10 |
| 51–100 hours | £18 |
| 101+ hours | £26 |
Alternatively, you can calculate the actual proportion of home costs attributable to business use (e.g., 1 room out of 5 used exclusively for work = 20% of eligible costs).
National Insurance for Self-Employed
Self-employed individuals pay National Insurance through their Self Assessment return. Class 2 NI was abolished from April 2024 — it is no longer a separate charge.
| NI Class | Rate 2025/26 | Applies To |
|---|---|---|
| Class 4 | 6% on profits £12,570–£50,270 | All self-employed with profits above £12,570 |
| Class 4 (upper) | 2% on profits above £50,270 | Higher earners |
| Class 2 | Abolished April 2024 | No longer charged |
If you also have employment income, your Class 4 NI is calculated on your self-employment profits alone (your employer handles Class 1 NI through PAYE). There is no automatic coordination — always check your combined NI position if you earn from multiple sources.
Popular Side Hustles and Their Tax Treatment
Deliveroo / Uber Eats / Just Eat Delivery Driving
Delivery drivers are classed as self-employed by the platforms. Income is trading income and subject to Income Tax and Class 4 NI on profits above the personal allowance. Key deductible expenses include mileage (45p/mile first 10,000), phone costs (business proportion), insulated bags, and accountancy fees. The trading allowance applies if total income is below £1,000.
Airbnb / Renting Out a Room
If you let a spare room in your main home, the Rent a Room scheme allows you to earn up to £7,500 tax-free per year. Income above this is taxable. If you let an entire property that is not your main home, this is property income and taxed separately from trading income. Short-term letting via Airbnb may also attract VAT if total income exceeds £90,000.
Etsy / eBay / Vinted Selling
Selling personal belongings is generally not taxable. Buying and reselling at profit (trading) is subject to Income Tax. Selling your own handmade items on Etsy is trading income. From January 2024, platforms report seller income to HMRC if you make 30+ sales or earn over a threshold. The £1,000 trading allowance applies to total platform income.
Tutoring / Teaching / Coaching
Private tutoring, music teaching, fitness coaching, and similar services are trading income. You can deduct costs of materials, relevant qualifications to improve existing skills, travel to pupils' homes, and home office costs if you teach from home. If your total income remains below £1,000, the trading allowance covers it entirely.
Freelancing (Writing, Design, Coding, Marketing)
Freelance income is treated as trading income. You must register for Self Assessment if earnings exceed £1,000. Allowable expenses include software subscriptions, co-working space, broadband (business proportion), professional indemnity insurance, training courses, and platform fees (Upwork, Fiverr, etc.). IR35 rules may apply if you work through a company or limited company.
Content Creation (YouTube, TikTok, Instagram)
Advertising revenue, brand deals, merchandise sales, and Patreon subscriptions are all trading income for content creators. Deductible expenses include camera equipment, editing software, studio costs, props, and any business travel. Equipment bought for content creation can be claimed through capital allowances.
Dog Walking / Pet Sitting
Pet services income is trading income. Key expenses include public liability insurance (essential), mileage, equipment, and advertising. You may also need to register under the Animal Welfare (Licensing of Activities Involving Animals) Regulations 2018 if you walk more than 3 dogs at a time for payment.
Record Keeping: What You Must Keep
HMRC requires self-employed individuals to keep adequate business records for at least 5 years after the 31 January submission deadline for that tax year. Good record keeping makes completing your tax return straightforward and provides evidence if HMRC investigates.
You should keep records of:
- All income received (invoices, platform statements, bank records)
- All business expenses (receipts, bank statements, invoices)
- Mileage logs (date, destination, business purpose, miles)
- Details of assets purchased for the business
- Bank statements for any business account
Free tools like HMRC's free bookkeeping app, Google Sheets, or low-cost accounting software (Quickbooks, Xero, FreeAgent) can make record-keeping much easier.
Making Tax Digital: What is Coming
Making Tax Digital for Income Tax Self Assessment (MTD ITSA) will replace the current annual Self Assessment process for self-employed individuals. Under MTD ITSA, you will need to keep digital records and submit quarterly updates to HMRC.
| Income Threshold | MTD ITSA Start Date |
|---|---|
| Over £50,000 (self-employment + property combined) | April 2026 |
| Over £30,000 | April 2027 |
| Over £20,000 | April 2028 (proposed) |
If your side hustle income (combined with any property income) exceeds these thresholds, you will need to use MTD-compatible software. Start planning now if you are approaching these levels.