With the cost of living rising and traditional employment structures evolving, more people are turning to side hustles to supplement their income. But, at what point do these extra earnings become taxable?

HMRC has launched a campaign to clarify when individuals need to report side hustle earnings to avoid unexpected tax bills. Here’s a breakdown of the key considerations.

Are you trading in HMRC’s eyes?

The tax treatment of your side hustle depends on whether HMRC considers you to be trading. This can apply to various activities, including:

1. Buying or making items to sell – Whether you’re making and selling products (including digital products), upcycling furniture, or reselling items for profit, HMRC would consider this trading?
2. Side gigs – Freelance services such as tutoring, dog walking, delivery driving, or gardening may be subject to tax if carried out regularly.
3. Multiple jobs – If you earn income from multiple sources, you may need to register as a sole trader.
4. Content creation or influencer – It might have started as a hobby but if you receive payments for online content or get paid to do sponsored social then HMRC will consider you to be trading.

The good news is that HMRC provides a £1,000 tax-free allowance for trading income. If your total side hustle earnings are below this threshold in a tax year, you won’t need to report them.

However, earnings over £1,000 must be declared, and tax may be due. This allowance applies across all trading activities – it is not £1,000 per income stream.

A common misconception is that selling fewer than 30 items a year means you don’t need to pay tax. In reality, online platforms must report sellers with over 30 transactions, but tax liability is based purely on income. If you make more than £1,000, even from less than 30 sales, you may need to report it.

What about rental income?

Renting out a property, spare room, or holiday let falls under different rules:

• Renting a room in your home – If earnings are below £7,500 per year, this is covered by the Rent a Room Scheme and is tax-free.
• Renting out a separate property – The property allowance allows up to £1,000 tax-free. Earnings above this must be declared.

It’s worth noting that you can use the £1,000 trading allowance as well as the rent a room scheme and property allowance.

Need Help?

Tax rules can be complex, and ensuring compliance is essential to avoid unexpected liabilities. If you’re unsure whether your side hustle earnings need to be reported, get in touch. At Wilson Partners, we can help you navigate the rules and structure your finances efficiently.