The national lockdowns meant that many people found they had extra time on their hands, which in turn created a whole raft of new entrepreneurs who decided to create ‘side-hustles’. Whilst on the whole there is nothing wrong with this, if you have set up a new side-hustle, there are various considerations that need to be taken into account, with the main being tax implications. In this article, we look at some of the key tax considerations for those embarking on the side-hustle journey.
Do I need to report my side income and pay tax?
Ultimately, it depends on how much income the side-hustle is generating, as if you reach a certain threshold from the side business, then tax will need to be paid. Once your total income (profit after costs) exceeds £1,000 in a single tax year, then you will be required to register as being self-employed and will need to pay tax on your earnings. If you are struggling to pay the required amount of tax, you might be able to apply for ‘time to pay’ and pay the amount due in smaller instalments, however there is usually an increased interest charge with this arrangement.
Luckily, if you remain under the threshold, then you shouldn’t need to worry about the tax implications.
Registering as self-employed
If you are required to register as being self-employed with HMRC then this must be done by 5 October in the following tax year and can be done online.
Once registered, you will be required to complete a tax return and send it to HMRC every year. The first tax return must be filed by 31 January after the full tax year.
You should inform HMRC if you decide to stop trading with your side-hustle as otherwise, you still may need to complete a tax return.
Do I need to do anything else?
As with most things, it is vital that you keep accurate records. You need to be able to show your incomings and outgoings as evidence that you are either below the threshold, or so that the correct amount of tax is payable if required. One of the easiest ways of doing this is to open a separate business bank account.
If you have set up a side-hustle and seek legal advice, please get in touch with our specialist team by calling 01752 663295.