Side Hustle Tax explained: everything you need to know

By the end of 2029, the UK Government plans to increase the self-assessment reporting threshold for side hustles from £1,000 to £3,000.

This means that if you run a side hustle, you won’t have to register for a full Self-Assessment tax return unless you earn £3,000 or more. 

However, while the reporting threshold is rising, the £1,000 trading allowance isn’t changing. Side hustle income over this amount may still be taxable, but it won’t require a full tax return like it currently does.

Understanding the difference between what’s tax-free, what’s taxable, and when you actually need to report your income might be confusing at first, but we’re here to help.

In this article, we’ll break down how side hustle tax really works, what the new threshold means, and the steps you need to take to remain compliant with HMRC.

What is a side hustle?

A side hustle is a way to earn extra money alongside your main job and is usually something you can fit around your existing schedule, such as evenings or weekends. 

Many people take up side hustles to boost their income, cover everyday costs, or earn money from doing what they love. In 2025, 39% of Brits had at least one side hustle as an additional source of income.

However, it’s important to know that while some side hustles are considered taxable, some are classed as hobbies and therefore, are not subject to tax. 

To determine which applies, HMRC uses the “badges of trade” criteria to assess whether an activity is being carried out as a trading business or simply for personal enjoyment. The main criteria typically cover areas like whether you’re trying to make a profit, organisation of the activity, source of finance, and period of ownership.

For example, selling an old sofa on eBay would be considered a hobby, and therefore wouldn’t be taxable. On the other hand, selling brownies and other baked goods on TikTok or at your local market would be classified as a business and would be subject to tax.

Examples of side hustles

Side hustles can take many forms, and the tax rules depend on the type of activity and how HMRC classifies it. Here’s a breakdown of the most popular side hustles and typical tax implications.

When is side hustle income subject to tax?

Under the UK’s current Trading Allowance, side hustle income is subject to tax when your gross income exceeds £1,000 in a single tax year. You will also need to register as self-employed with HMRC and file a Self-Assessment tax return.

Side hustle tax isn’t an official tax in the UK. Instead, it’s simply the income tax and National Insurance Contributions (NICs) you pay on any earnings from a side business or freelance work.

How will side hustle tax change from 2029?

From 2029, the Government plans to raise the Self-Assessment reporting threshold for side hustle or self-employment income from £1,000 to £3,000. 

However, that isn’t to say that you won’t have to pay tax if you earn under £3,000. The £1,000 trading allowance remains the same, so any income above that is still taxable.

The change mainly affects when and how you report your income. If you earn between £1,000 and £3,000, you won’t need to submit a full Self-Assessment tax return, but HMRC will still expect you to pay tax.

To do this, the Government plans to introduce a new online reporting tool, which is expected to arrive by 2029. Further details of this online tool are yet to be announced, but here’s a quick breakdown of how the rules will work:

• £0 – £1,000: Tax-free and no reporting required
• £1,001-£3,000: You still owe tax, but you won’t need to submit a full Self-Assessment
• £3,000+: Full Self-Assessment tax return required

How much tax will you have to pay on side hustle income?

The amount of tax you’ll pay on side hustle income depends on how much you earn. As with operating as a sole trader or freelancer, your side hustle will be subject to income tax and NICs. Here are the current rates:

Income tax rates

National Insurance

Who needs to pay tax on their side hustle?

Anyone earning money from a side hustle that HMRC considers a business or trade may need to pay tax. A few examples include:

• Food and beverage (F&B) brands selling products at weekend markets, or through an ecommerce platform (such as Shopify).
• Freelancers or gig workers (such as graphic designers, freelance writers, or translators) providing services for profit.
• Resellers buying vintage stock (such as clothes or jewellery) to sell on platforms like Vinted and Depop.
• Online sellers, including people selling handmade crafts on Etsy or running an online store.
• Digital or online creators, such as YouTubers, TikTok creators, and social media influencers earning sponsorship money.
• Part-time service providers like dog-walkers, babysitters, tutors, and fitness instructors working evenings or weekends.

How to declare your side hustle income

Understanding when and how to declare your side hustle earnings can help you stay on HMRC’s good side and avoid any unexpected surprises. Here’s what you’ll need to do, step-by-step.

1. Register for Self-Assessment

As mentioned before, if your side hustle is likely to exceed £1,000 (£3,000 from 2029), you’ll need to register for Self-Assessment. You can do this online via the government website. From there, HMRC will send you a Unique Taxpayer Reference (UTR) and details on how to file your tax return.

The deadline for your Self-Assessment tax return is 31st January, so it’s important to keep this date in mind to avoid late-filing penalties.

2. Keep accurate records

Even if you don’t owe tax yet, it’s important to track all income and expenses. This includes invoices, receipts, and bank statements, which you must keep for five years after the Self-Assessment deadline. Doing so through a good-quality accounting software will make it easier to calculate your taxable profits, claim allowable business expenses, and avoid queries from HMRC.

3. Fill in your tax return and pay

On your Self-Assessment form, you will need to report the following:

• The total income from your side hustle
• Any allowable business expenses to reduce profits (such as travel expenses, marketing costs, office expenses, etc.)
• Any other taxable income (such as salary, rental income, investments, etc.)

HMRC will then calculate your income tax and NICs based on your total profits. Once your return is submitted, HMRC will tell you how much tax you owe. There are a few ways you can pay the tax, including:

• Online, via bank transfer, debit/credit card, or through your tax account.
• In instalments, but only if eligible for the HMRC “Payment on Account” system.

What happens if you’re not compliant?

Not complying with HMRC can lead to financial consequences. Therefore, it’s important to know what to expect and how to respond. Acting quickly can help you avoid unnecessary fines, interest, or even more serious outcomes.

The “nudge” letter

If HMRC finds a discrepancy in your tax return, they will send a “nudge letter”.If you receive this, don’t panic. The letter isn’t an accusation as such, but it’s crucial that you respond as soon as possible.

The first thing you should do is review your records for any potential errors or undisclosed income. If everything is correct on your side, you should respond to HMRC in writing and explain that you have reviewed your records and haven’t found any issues. 

On the other hand, if there are errors found, you should amend your tax return or declare the undisclosed income as soon as possible, and pay any tax owed.

Missing the Self-Assessment deadline

You will be automatically charged £100 if you miss the 31 January deadline and file your tax return late. If your return remains outstanding, additional penalties can apply, which are £10 per day for up to 90 days, plus further percentage-based fines if the delay continues.

On top of this, HMRC may also charge interest on any unpaid tax, and in more serious cases, a “failure to notify penalty” could be imposed if you didn’t report income that should have been declared.

Summary: next steps

Side hustles are a great way to boost your income while pursuing your passions, but it’s important to understand the tax implications that come with them. 

Whether you’re running an ecommerce business, offering freelance services, or just selling a few handmade goods, understanding your tax obligations will help ensure your side hustle remains both profitable and stress-free.

Plus, with upcoming changes like the higher Self-Assessment reporting threshold and increased platform reporting under DAC7, transparency is more important than ever. That’s why keeping accurate records, reporting your income correctly, and paying any due tax is essential to staying compliant with HMRC.

For taxable side hustles, the Government is making digital record-keeping mandatory from 6 April 2026. To ensure your side hustle remains compliant, check out our guide to Making Tax Digital (MTD) for everything you need to know.