As a self-employed individual, it’s crucial to understand your tax obligations, especially when it comes to reporting income from side hustles. Failing to declare all your relevant income can lead to penalties and interest charges.
All good blogs start with a definition, so here goes: a side hustle is a secondary job or business that you undertake in addition to your main occupation. It can range from freelancing and consulting to selling products online or providing services on platforms like Uber, Deliveroo or Vinted.
Generally, you need to report your side hustle income to HMRC if your total profits from all your self-employment activities exceed the Personal Allowance. For the tax year 2023/24, the Personal Allowance is £12,570.
Even if your profits are below the Personal Allowance, you still need to report your income if you have other sources of income, such as employment income or rental income, that push your total taxable income above the Personal Allowance.
There are two primary methods to report your side hustle income to HMRC:
- Self-Assessment Tax Return: If your total taxable income exceeds £10,000, you must submit a Self-Assessment tax return. This involves completing a form and declaring your income and expenses. You can submit your return online through the HMRC website.
- Simplified Income Declaration: If your total taxable income is below £10,000, you may be eligible for the Simplified Income Declaration (SID) scheme. This is a simpler way to report your income. You’ll need to provide basic information about your income and expenses.
To accurately report your side hustle income, it’s essential to keep detailed records of your income and expenses. This includes:
- Income: Record all payments you receive, including cash, bank transfers, and cheques.
- Expenses: Keep receipts for all business-related expenses, such as equipment, supplies, travel costs, and advertising.
To determine your taxable profits, subtract your allowable expenses from your total income. Keep in mind that not all expenses are deductible. For example, personal expenses and capital expenditures are generally not deductible.
Once you’ve calculated your taxable profits, you’ll need to pay tax on them. The tax rate you’ll pay depends on your total taxable income. If your total taxable income is below the higher rate threshold, you’ll pay the basic rate of tax. If your total taxable income exceeds the higher rate threshold, you’ll pay the higher rate of tax. That’s pretty obvious.
Equally obvious is that failing to report your side hustle income to HMRC can result in penalties and interest charges. These penalties can be significant, so it’s important to comply with your tax obligations.
The best thing is, of course, to tell us all about all your income sources, and the expenses you’ve incurred creating those revenue streams, and we can help make you as tax-efficient as possible. The worst case scenario is a side-hustle that takes you over a threshold, so let’s talk and make sure you get the most from your hard work.
