5 Financial Tips for Managing a Side Hustle in the UK

Running a side hustle can be incredibly rewarding, offering extra income and the chance to pursue your passions. But as thrilling as it is, managing your finances effectively can feel overwhelming. From understanding tax obligations to tracking expenses, it's easy to get lost in the details.

If you're trying to manage your side hustle better, don’t worry—you’re not alone. Follow these five essential financial tips to simplify your business operations and make your UK side hustle more stress-free (and profitable) than ever.

1. Understand Your Income Tax Obligations

If you're earning extra income, understanding your tax obligations is a vital first step. All side hustle earnings must be declared via a self-assessment tax return to HM Revenue and Customs (HMRC). Failing to register could lead to penalties or surprise bills.

To get started, register for Self-Assessment on the UK Government website. Income under £1,000 benefits from the trading allowance, which means you may not need to declare it. For higher earnings, consulting an accountant can ensure compliance and reduce your tax liability effectively.

Tip for easier tax management? Try using tools like QuickBooks or Xero to stay on top of your records.

2. Keep Track of Allowable Expenses

Reducing your tax bill can be easier than you think by claiming allowable expenses. These business-related costs are deducted from your taxable income and can include:

• Office supplies such as stationery or equipment like laptops
• Phone and internet bills used for business purposes
• Marketing costs, including paid ads or website fees
• Business travel and transport expenses

HMRC may ask for evidence of claims, so keeping detailed records is crucial. Many accounting apps like Receipt Bank can simplify this process by logging receipts in real time.

For a detailed list, refer to the HMRC guide on allowable expenses, which helps you identify all eligible costs you can claim.

3. Separate Personal and Business Finances

Combining personal and business finances might seem convenient, but it leads to complications down the line. A dedicated business bank account simplifies tracking income, organising expenses, and preparing for future tax returns. Here’s why this matters:

• Efficiency: Transactions in one place ensure clear records and prevent missed deductions.
• Legal Clarity: If you’ve set up a limited company, separating accounts is mandatory under UK law.

Consider digital alternatives like Starling Bank or Tide Business Accounts that offer tailored banking solutions for small businesses and freelancers. These often include features like automated invoicing and tax summaries.

4. Plan for National Insurance Contributions

Your side hustle income may change how much National Insurance (NI) you owe. Here's what to expect:

• Class 2 contributions (£3.45 weekly if you earn over £6,725 annually in 2023/24)
• Class 4 contributions (9% on profits from £12,570 to £50,270 per year)

To estimate your NI payments, use the UK Government’s National Insurance calculator. Being proactive avoids unwelcome surprises during tax season.

If you're unsure about your tax bracket or how NI applies to your earnings, speaking to an accountant is a wise investment.

5. Review Your Tax Liability Regularly

A growing side hustle means more income—and higher tax obligations. Regularly reassessing your financial landscape ensures you’re not caught off guard. Here are some proactive measures:

• Track profit growth and adjust your tax strategy as needed.
• Explore whether switching to a limited company structure may benefit you. It often becomes tax-efficient as profits exceed certain thresholds.
• Use the expertise of virtual accountants to assess your finances and uncover savings opportunities.

You can check if forming a limited company would save you money by reading the gov.uk guide to running a limited company.

Manage Your Side Hustle with Confidence

Managing the financial side of a side hustle doesn't need to be daunting. By following these five steps, you’ll avoid tax pitfalls, save money with allowable expenses, and gain a clear view of your income. The end result? A side hustle that remains both rewarding and profitable.

For tailored financial support, consider getting help from professionals. Firms like Virtue Accountants, specialise in assisting small businesses and side hustlers with everything from tax returns to efficient bookkeeping.