Updated: Nov 11, 2020
You've started side-hustling and have no clue how or what to declare to HMRC. Don't worry, you're not alone. In this post I will try to explain in basic terms, how tax in the UK works and what we need to declare from our side-hustles. Please note that while I am not a tax-expert, the information in this post is based off my personal experience and is accurate as of May 2020.
In the UK any income above £12,500, will be taxed at a rate of 20%, if you're fortunate enough to earn over £50,000, you will be taxed at a rate of 40%, and if you're basically too rich to be on this page and earn over £150,000, you will be taxed at a rate of 45%.
That being said, if you earn over £1,000 from side hustles per year, you will need to declare this to HMRC. Anything up to £1,000 is within the Trading Income Allowance, a policy created in 2017. If you earn under £80 a month from side-hustles you should be safe, however you should always keep track of any extra earned income.
The £1,000 is BEFORE expenses are taken off (such as cost of materials, travel, etc..)
What type of Side Hustles do I need to declare?
Any types of Side Hustle I don't need to declare?
Matched Betting - this income counts as gambling winnings
Renting a Room - up to £7,500 tax-free with the Government's Rent A Room scheme
Selling of personal items
How do I declare my income to HMRC?
You will need to complete a Self-Assessment (otherwise known as a tax return) with HMRC. This can be done online, however you must first register for a UTR (Unique Tax Reference) - the process takes up to ten working days the first time you register, and you will receive everything you need in the post. This self-assessment will also include any PAYE income but will take into account the tax you have already paid on this. You can also find this information on your P60 or Personal Tax Account.
Tax years run from April 6 - April 5 and you will be able to submit from this date. I would always advise submitting your self-assessment as early as possible, so if necessary you can save your tax bill until you have to pay in January (before 31st!). When you first start trading, you have until October 5th of the following tax year to submit your return.
Once you register for this service you will need to submit a self-assessment every year until you cease trading, even if your extra income falls below £1,000.
Payment on Account
The first time you submit your assessment, you will owe the amount for that tax year PLUS half of the 'estimated' tax for next year by January 31st - this is called 'payment on account'. This is how HMRC ensures you will continue to pay tax and submit assessments, it's their insurance. You will then owe the other half by July 31st. If you submit the next year's assessment before July 31st, the payment on account may be adjusted, and you may even get a repayment (when HMRC owes YOU money!) This is why it's important to keep filing when you earn under the £1,000 threshold. If your tax bill is less than £1,000 OR you have already paid more than 80% of the tax you owe (from over payments from past years of from PAYE work), you will not have to make a payment on account.
It is likely that you will be able to claim some expenses. These costs are taken into account when working out your final tax bill, usually reducing if not in full, then by an amount of the expense.
I would advise you keep all physical and online receipts for things you pay for regarding your business or side hustle. Not only does this help you keep track but can be provided to HMRC as evidence if ever required.
Some common expenses:
Travel (slightly complicated, check the government website)
Online courses - to better or build your business
Online subscriptions - web hosting, software, etc..
Still confused? Here's an example.
Sarah works a 9-5 and earns £20,000pa. In her spare time she creates jewellery and sells this on website that charges a £60 usage fee per year, she also occasionally dog sits for a friend and has dabbled in matched betting.
She does not need to include her PAYE earnings on this page. Also she does not include any matched betting income, as this is tax-free.
(for this example I have just done one month's expenses) In April, she pays £100 for materials to make her jewellery, spends £25 in postage fees and renews her yearly subscription with her selling platform.
Sarah works out she drives around 250 miles per year, going to / from the post office to post the jewellery. She can claim this at 45p per mile.
Below is her Tax Calculation using these figures. Now it's likely Sarah would have accrued more expenses throughout the year (such as more materials, more postage and driving to dog sit) but we'll use this as a basis.
She inputted her PAYE earnings here and the Tax and NI she has already paid provided from her P60, the spreadsheet did all the other calculations using the figures she had included.
Sarah submits her self-assessment on April 25th 2020. By January 31st 2021, she pays £186.27 for tax year 2019/2020, PLUS £93.14 payment on account for tax year 2020/2021. On July 31st she pays £93.13.
Sarah submits her 2020/2021 self-assessment on August 31st. She has earned under £1000 this year. HMRC sends her a repayment for the payments made on account for this year. She owes a small amount for next years payment on account.
These spreadsheets are the exact version I use, and have submitted to HMRC for years. Please feel free to ask me any questions! You will need to open them, click on the file menu and make a copy, this will make a copy in your own Google Drive where you can edit it from there.
I would advise using these as a 'running document' - update it every time you make a sale or cash out from a survey site. That way there's no rush to complete it and rummage though all your transactions in January (tax deadline!)
If you are unsure of anything please do not hesitate to message me and i'll do my best to answer from my experience, or contact HMRC. They are very helpful!
Alternatively, use HMRC's income tax calculator for an estimate for how much you may need to save for your tax bill.