Mastering Side Gig Taxes: Your Simple Guide to UK Compliance

Do you have a side hustle? Whether you're a freelancer, run an Etsy shop, or are passionate about part-time projects, understanding how UK tax laws apply to your extra income is crucial. You might feel a bit overwhelmed by self-assessment requirements, HMRC compliance, and keeping records, but don't worry—we’re here to make it as simple as possible for you.

This guide will take you through the essential steps to managing your side gig’s legalities, including when to inform HMRC, applicable taxes, record-keeping tips, and common mistakes to look out for. Let's get started!

Do I Need to Register My Side Gig with HMRC?

Yes, you do! If you’re earning any income outside of your main job, it’s your legal responsibility to inform HMRC. Whether you’re a tutor, selling homemade crafts, or snapping photos for events, every bit of self-employment income—no matter how small—is taxable.

How to Stay on the Right Side of the Law

Here are the key steps to ensure you remain compliant with HMRC:

1. Register for Self-Assessment

   If your side hustle brings in more than £1,000 in a tax year, you need to register for self-assessment on the HMRC online portal. This applies even if your side hustle is part-time alongside your salaried role.

2. Submit Your Tax Return

   Each year, you need to report your income and expenses via a self-assessment tax return. HMRC will calculate how much tax you owe based on the information you provide.

3. Meet the Deadlines

   File your tax return on time to avoid penalties. For the 2024/25 tax year, the online submission deadline is 31st January 2026. Missing this date could result in fines, so be sure to mark it in your calendar.

By registering early, you avoid potential penalties and get a head start on managing your finances.

What Taxes Will I Need to Pay?

Earnings from your side gig may be subject to several types of taxes, depending on how much you make. These could include Income Tax, National Insurance Contributions (NICs), and even VAT if your total business income crosses a certain threshold.

A Quick Breakdown of Taxes

1. Income Tax
   You’ll pay tax on profits earned from your side hustle. The rate depends on your total income from all sources (main job + side gig).
2. National Insurance Contributions (NICs)
   If your profits exceed £12,570 in the 2024/25 tax year, you’ll need to pay NICs.
3. Value-Added Tax (VAT)
   If your taxable turnover exceeds £90,000 in a 12-month period, you must register for VAT.

For a more detailed explanation of tax thresholds, check out the HMRC income tax rates guide.

How to Keep Your Records in Tip-Top Shape

Good record-keeping is essential to stay on top of your tax obligations and save time when filing returns. Here are some practical tips:

• Track Income Consistently
  Record every penny earned from your side gig, whether it’s through sales, contracts, or payments for services provided.
• Log Expenses
  Keep a detailed record of all allowable expenses, such as materials, software, transport costs, and even a portion of household utility bills if you work from home.
• Keep Receipts and Bank Statements
  Save invoices and receipts for all purchases and expenses. If you have a separate business bank account, your statements will also act as a valuable record.

Go Digital

Consider using tools like Xero or QuickBooks for paperless, real-time record-keeping. These cloud-based platforms allow you to simplify your tax prep and stay compliant with Making Tax Digital (MTD) standards.

Avoiding Common Mistakes

It’s easy to make mistakes when juggling a side gig with other commitments, but the consequences—like fines or an HMRC investigation—can be costly. Here’s how to stay on track:

Mistakes You Should Watch Out For

1. Underreporting Income
   Report all income from your side gig, no matter how small. Even minor discrepancies can raise red flags for HMRC.
2. Mixing Business and Personal Finances
   Keep your finances separate. For instance, only claim business expenses for phone or internet usage if you have clear records to support them.
3. Missing Deadlines
   Late filing or payment, even if you owe no tax, can result in penalties. Set reminders or use apps to ensure you never miss a deadline.

Time-Saving Habits

• Spend time monthly reviewing your income and expenses. This way, you’re ready to file without stress during tax season.
• Automate as much as you can by using bookkeeping software.
• Work with professionals when you need expert guidance. The team at Virtue Accountants, for instance, can help simplify your side gig’s finances.

Feel Confident About Your Taxes

Taking care of your tax obligations doesn’t have to be complicated. From registering with HMRC to filing your returns, keeping thorough records, and avoiding common mistakes, you can tackle the legal side of your side hustle with confidence.

At Virtue Accountants, we specialise in helping freelancers, small business owners, and side hustlers. Whether you need advice on VAT registration or want to outsource your self-assessment filing, we’re here to help.

Need a hand with your side gig’s taxes? Contact us today to get started and make managing your finances stress-free!