Whether you’re selling crafts on Etsy, driving for a ride-hailing app, or freelancing on the side, HMRC wants to know about it. The good news? You may not owe any tax at all if your earnings are small enough. Here’s everything you need to stay on the right side of the taxman.
Trading Allowance: Your £1,000 Tax-Free Buffer
The trading allowance lets you earn up to £1,000 per tax year from casual trading without paying any Income Tax. This covers most small side hustles.
What Counts as Trading Income?
| Activity | Covered by Trading Allowance? |
|---|---|
| Selling handmade goods online | Yes |
| Freelance writing or design | Yes |
| Tutoring or coaching | Yes |
| Babysitting or pet sitting | Yes |
| Driving for ride-hailing apps | Yes |
| Offering services on freelance platforms | Yes |
| Selling at car boot sales | Yes |
How the Allowance Works
| Your Trading Income | Tax Treatment |
|---|---|
| Under £1,000 | No tax, no need to declare |
| Exactly £1,000 | No tax, no need to declare |
| Over £1,000 | Tax on the full amount (not just the excess) |
Important: If your trading income exceeds £1,000, you pay tax on the entire amount, not just the bit above £1,000. This is different from the personal allowance for employment income.
When You Don’t Need to Register
You do not need to register for Self Assessment if:
- Your trading income is £1,000 or under for the tax year
- You have no other income that requires a tax return
- You’re not VAT registered
Property Allowance: Another £1,000 Tax-Free
If you rent out land, a driveway, or a room and it generates less than £1,000 per year, you don’t need to pay tax on it. This is separate from the trading allowance.
What Counts as Property Income?
| Activity | Covered by Property Allowance? |
|---|---|
| Renting a parking space or driveway | Yes |
| Renting out a room (below rent-a-room limit) | Yes |
| Letting land for grazing or events | Yes |
| Hosting on Airbnb (occasional) | Yes |
Note: The rent-a-room scheme lets you earn up to £7,500 per year tax-free from letting a furnished room in your main home. This is separate from and more generous than the property allowance.
When to Register as Self-Employed
You must register with HMRC as self-employed if:
| Threshold | Action Required |
|---|---|
| Trading income over £1,000 | Register for Self Assessment |
| Expecting to owe more than £1,000 in tax | Register for payments on account |
| Starting a business that earns over £85,000 | Register for VAT |
Registration Deadline
You must register by 5 October following the end of the tax year in which you first earned taxable trading income.
| Tax Year | Registration Deadline |
|---|---|
| 2025/26 (6 Apr 2025 – 5 Apr 2026) | 5 October 2026 |
| 2026/27 (6 Apr 2026 – 5 Apr 2027) | 5 October 2027 |
| 2027/28 (6 Apr 2027 – 5 Apr 2028) | 5 October 2028 |
Late registration penalties: HMRC can charge you penalties if you register late, even if you don’t owe any tax.
How to Register
- Go to gov.uk and search for “Register for Self Assessment”
- Choose the self-employed option
- You’ll receive a Unique Taxpayer Reference (UTR) by post within 10 working days
- Activate your online account using the UTR
Allowable Expenses You Can Claim
Once you register as self-employed, you can deduct business expenses from your income. This reduces your taxable profit.
Common Allowable Expenses
| Expense | What You Can Claim |
|---|---|
| Home office | Proportion of rent, mortgage interest, utilities, council tax based on space used. Or use simplified rates: £10/month (25-50 hours), £18/month (51-100 hours), £26/month (101+ hours) |
| Equipment | Laptop, phone, printer, desk, chair — claimed in full or via capital allowances |
| Travel | Business mileage (45p/mile for first 10,000 miles, 25p after), train and bus fares for business trips, parking and tolls |
| Phone and internet | Proportion used for business (e.g., 50% if half your usage is business-related) |
| Software and subscriptions | Accounting software, design tools, industry subscriptions |
| Marketing | Website hosting, business cards, advertising costs |
| Professional fees | Accountant fees, professional indemnity insurance |
| Stock and materials | Cost of goods sold — materials, ingredients, components |
| Training | Courses directly related to your side hustle |
What You Cannot Claim
| Expense | Why It’s Not Allowable |
|---|---|
| Daily commuting to a regular workplace | Not a business expense |
| General clothing | Unless protective or uniform |
| Entertaining clients | Not allowable |
| Fines and penalties | Never allowable |
| Personal meals | Unless travelling for business |
Common Side Hustles and How Tax Works
Freelancing (Writing, Design, Development)
- Trading allowance covers the first £1,000
- Above that, declare via Self Assessment
- Claim expenses for software, equipment, home office
- Consider setting aside 20-30% of profit for tax
Tutoring
- In-person or online tutoring counts as trading income
- One-to-one and group sessions both covered
- Claim travel costs if visiting students
- Materials and resources are allowable expenses
Selling Online (eBay, Vinted, Etsy)
- Regular selling counts as trading — even if it’s “occasional”
- HMRC looks at frequency, volume, and intent
- One-off clearouts of personal items are generally not taxable
- Claim packaging, postage, platform fees
Rental Income (Airbnb, Spare Room)
- Use the rent-a-room scheme (£7,500 tax-free) for a furnished room
- Property allowance (£1,000) for other property income
- Full Self Assessment required above these limits
- Claim mortgage interest (20% tax credit), insurance, repairs
Gig Economy (Deliveries, Ride-Hailing)
- Earnings from apps like Deliveroo, Uber, TaskRabbit are trading income
- Trading allowance applies to the first £1,000
- Claim vehicle expenses (mileage or actual costs)
- Insurance and phone costs may be allowable
Worked Example: Freelance Side Hustle
| Item | Amount |
|---|---|
| Total freelance income | £5,000 |
| Allowable expenses | -£1,000 |
| Taxable profit | £4,000 |
| Income Tax (20% basic rate) | -£800 |
| Tax owed | £800 |
Breakdown of Expenses Claimed
| Expense | Amount |
|---|---|
| Laptop (capital allowance) | £300 |
| Software subscriptions | £200 |
| Home office (simplified rate) | £216 (£18/month x 12) |
| Phone (50% business use) | £120 |
| Travel to client meetings | £164 |
| Total expenses | £1,000 |
What You Actually Pay
- Income Tax: £800 (20% of £4,000)
- National Insurance (Class 2): £0 if profits under £12,570 (voluntary otherwise)
- National Insurance (Class 4): 6% on profits between £12,570 and £50,270 (not applicable here as profits are under the threshold)
Total tax bill: £800 on £5,000 of income.
Self Assessment Filing Deadline
Once registered, you must file a tax return by 31 January following the end of the tax year.
| Tax Year | Filing Deadline |
|---|---|
| 2025/26 | 31 January 2027 |
| 2026/27 | 31 January 2028 |
| 2027/28 | 31 January 2029 |
Payment Deadlines
| Deadline | What’s Due |
|---|---|
| 31 January | Balancing payment + first payment on account (if applicable) |
| 31 July | Second payment on account |
Tips for Managing Side Hustle Tax
- Set aside money from day one — put 20-30% of every payment into a savings account for tax
- Keep records throughout the year — receipts, invoices, bank statements, mileage logs
- Use accounting software — FreeAgent, Xero, or QuickBooks make Self Assessment easier
- Claim everything you’re entitled to — every legitimate expense reduces your tax bill
- Don’t forget National Insurance — check if Class 2 or Class 4 applies to you
- Consider voluntary Class 2 NI — even if profits are below the threshold, it protects your State Pension record
When to Get Professional Help
Consider hiring an accountant if:
- Your side hustle income exceeds £10,000
- You have multiple income streams
- You’re not sure what expenses you can claim
- You need help with payments on account
- Your tax situation is becoming complex
Most accountants charge between £150 and £300 for a basic Self Assessment return — and they often save you more than they cost by finding expenses you’d miss.
Key Takeaways
- The £1,000 trading allowance means small side hustles are tax-free
- If you earn over £1,000, register for Self Assessment by 5 October
- Claim all allowable expenses to reduce your tax bill
- Keep records from the start — HMRC can investigate up to 20 years back
- Set aside 20-30% of profit for tax to avoid a surprise bill
- Free help is available from HMRC, Citizens Advice, and TaxAid
Side hustles are a great way to boost your income — just make sure you’re handling the tax correctly. A little planning upfront saves a lot of stress at the end of the tax year.