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Side hustles

Last year saw a rise in self-employed numbers across the UK which was driven by a significant increase in the number of side hustles. This is where employees take on a side business to supplement their income, a trend that continues to grow following a significant uptick during the pandemic and subsequent cost-of-living crisis. Here we take a look at the side hustle and its tax implications.

No surprise

The attraction of side hustles comes as no surprise. According to figures from the Association of Independent Professionals and the Self-Employed (IPSE), almost two-fifths of employees were considering working for themselves just two years ago.

Many of those wanting to supplement their employment income say it was due to the challenges of the cost-of-living crisis.

In the last year alone, the number of side hustlers has increased by 20%, up to 460,000 and now comprises 11% of all solo self-employment, says IPSE.

Working mums account for 21% of all side hustles, which is up by 8% since last year, it adds.

Fully-fledged

Over the next few years it will be interesting to see how many of these newly found side hustles transition into fully-fledged self-employed businesses.

Self-employment numbers rose last year, according to the Office for National Statistics (ONS). As of October 2024, there are 4.4 million self-employed individuals operating in the UK, up from 4.2 million just three months earlier. This is only the second time that self-employment has topped 4.4 million since the pandemic.

The sector’s contribution to the UK economy has now increased by 11%, from £331 billion in 2023 to £366 billion in 2024.

Fiscal responsibilities

Whether it is just a side hustle or fully-fledged self-employment there is a good chance that it will mean being drawn into the self assessment net.

It is vital to remember that, even if you are not asked to complete a tax return, it remains your responsibility to advise HMRC if there is a new source of untaxed income, a capital profit that could lead to a tax liability.

In addition, HMRC are increasingly emphasising the importance of good records. Failure to maintain adequate records may lead to inaccurate tax returns, which could result in penalties.

Self assessment (SA) timetable

Income tax and capital gains tax are both assessed for a tax year which runs from 6 April to the following 5 April.

Shortly after 5 April - SA returns or a notice to complete a return are issued by HMRC.

31 October following - non-electronic returns need to be submitted to HMRC by this date.

31 January following - final date for submission of the return and all outstanding tax to be paid.

There is an automatic penalty for late filing of the return of £100.

Further penalties may be due if the filing of the return is significantly delayed. These may run into hundreds of pounds.

Trade Allowance

A Trade Allowance is available to individuals.

There is an equivalent rule for certain miscellaneous income. This will apply to the extent that the £1,000 trading allowance is not used against trading income.

The Trading Allowance is not available against partnership income.