A side hustle does not have a separate tax status. If you are earning money from trading, freelancing, casual services or another business activity, the normal tax rules apply even if you also have a full-time job.
The first figure to understand is the £1,000 trading allowance.
How the £1,000 trading allowance works
The trading allowance is an exemption of up to £1,000 a year for certain trading income. The test is based on gross income, which means income before deducting expenses or allowances.
If your annual gross trading income from the relevant activities is £1,000 or less, you may not need to tell HMRC, although there are exceptions and you should still keep records of the income.
If your gross trading income is more than £1,000, you generally need to register for Self Assessment and report the income.
Trading allowance or actual expenses?
Where your gross trading income is above £1,000, you may be able to deduct the trading allowance instead of claiming actual business expenses. You cannot use the allowance and then also deduct the same business expenses.
If your allowable expenses are higher than the trading allowance, claiming the actual expenses may produce a better result. The right answer depends on your records and the nature of the business.
When do you need to register?
If you need to complete a Self Assessment return and have not been filing one, HMRC normally needs to be told by 5 October following the end of the relevant tax year.
For a standard Self Assessment return, the usual online filing deadline is 31 January following the end of the tax year. The balancing payment is also normally due by 31 January, with payments on account potentially due on 31 January and 31 July.
Keep the records even if the amounts are small
Keep a clear record of sales and other income, together with receipts and evidence for any expenses you intend to claim. A separate bank account is not generally a tax requirement for a sole trader, but separating business and personal transactions can make record-keeping much easier.
Making Tax Digital for Income Tax
Making Tax Digital for Income Tax started from 6 April 2026 for qualifying sole traders and landlords with qualifying income over £50,000. The threshold is due to extend to more people in stages, including those over £30,000 from April 2027 and over £20,000 from April 2028.
Qualifying income is based on gross self-employment and property income rather than profit, so someone with a larger side business can come within the rules even where expenses reduce the taxable profit substantially.
A side hustle can stay small, or it can quickly become a meaningful business. The important thing is to understand the tax position early, keep usable records and avoid waiting until a filing deadline to work out what happened during the year.
If you are unsure whether you need to register or what to include on your return, get in touch.
