Changes to UK tax rules for your side hustle!
- TBA
- May 2
- 4 min read
If you have a full-time job but enjoy making some extra money through second-hand selling platforms, you need to be aware of changes to income tax rules!
Side Hustle Income Below £3,000? No Need to Declare to HMRC
James Murray, the UK’s Tax Minister, has announced that individuals making money through platforms like Vinted and eBay, or earning income via TikTok, will no longer need to submit a Self-Assessment Tax Return to HMRC if their side hustle income is below £3,000. However, tax will still be payable on income exceeding £1,000.
This change is expected to take effect before the next general election in 2029. It will apply to those selling second-hand clothing on platforms such as Vinted and eBay, selling handmade gifts on Etsy, offering services such as dog walking, gardening, taxi driving, food delivery, or creating online content.
The Treasury estimates that this increased reporting threshold will benefit around 300,000 taxpayers, with 90,000 of them no longer needing to pay tax or report their income to HMRC. According to the Treasury, 98% of those affected are small-scale self-employed individuals, while 2% of the income in question comes from property.
Reporting Side Hustle Income to HMRC
Under new regulations, all digital platforms must submit 2024 sales data and some personal information to HMRC by the end of January 2025. If you sold at least 30 items or earned approximately £1,700 (around €2,000) via platforms like eBay or Vinted in 2024, or provided paid services via Airbnb and similar platforms, your platform provider will notify you that your information has been shared with HMRC.
It is important to note that the sharing of sales data does not automatically mean you need to file a tax return. However, you may need to register for Self-Assessment and pay tax if:
You purchase goods to resell or make products with the intention of making a profit.
You provide services via digital platforms, such as food delivery or renting out holiday properties.
Your total online sales or service income exceeds £1,000 in any tax year before deducting expenses.
Selling personal items (such as clearing out old clothes) is usually not taxable or reportable, as it is not considered a business activity.
UK Personal Allowance and Tax-Free Thresholds
For the 2024/25 and 2025/26 tax years, everyone in the UK has a £12,570 personal allowance for each year, which applies to all income (including employment and side hustle income). If your total income (main job + side hustle) is below £12,570, you do not need to pay income tax. If your total income exceeds this amount, you will only pay tax on the excess.
Additional tax-free allowances:
Dividend Allowance: £1,000 (for income from shares)
Personal Savings Allowance: £1,000 for basic rate taxpayers, £500 for higher rate taxpayers
Property Allowance: £1,000 tax-free if renting via platforms like Airbnb
If your side hustle income exceeds £6,725, you may also need to pay National Insurance (NI), depending on your tax situation for Self Assessment and submit a Self Assessment Tax Return annually.
Filing Your Taxes with HMRC
If you meet the reporting criteria, you need to declare your income to HMRC. The steps are:
Register for Self-Assessment
Register on the HMRC website.
Registration deadline: 5 October each year (for the previous tax year’s income).
You will receive a Unique Taxpayer Reference (UTR) for tax reporting.
Report Income
Submit your Self-Assessment Tax Return by 31 January each year (for the previous financial year). Paper returns must be submitted by 31 October.
Calculate your taxable income (total side hustle income minus allowable business expenses).
Pay any tax due by 31 January.
Should You Register as Self-Employed or Start a Company?
Many side hustlers wonder whether to operate as a Sole Trader or set up a Limited Company. Each option has pros and cons:
Sole Trader
A Sole Trader is the UK’s most common form of self-employment, similar to being a sole proprietor. It is easy and inexpensive to set up, and you retain full control over the business. Your financial information remains private, and you do not need to file annual accounts.
However, you are personally liable for all business debts, which means your personal assets are at risk. Additionally, once your profits exceed a certain level, your tax rate could be higher than that of a limited company.
For example, if your profits exceed £50,270, you will be taxed at 40%-45%, compared to the 25% corporation tax for a limited company.
Limited Company
A Limited Company (LTD) is a separate legal entity, meaning your personal assets are protected. Corporation tax is fixed and could be lower than the income tax rate for high-earning sole traders.
However, running a limited company involves more administration and compliance, including annual financial statements, company filings, and VAT reporting (if applicable).
If your side hustle is small with no plans for expansion, operating as a Sole Trader is simpler and easier for tax purposes. However, if your business is growing or you plan to hire employees, registering a limited company may provide better tax benefits and financial protection.
