You’re reaching your personal finance goals due to some good old hustling on the side of your 9-5 job- congratulations! The extra cash you are making feels amazing- but is there a niggling voice in the back of your mind reminding you that the taxman needs to take a percentage? The process of declaring additional income to HMRC can seem daunting, and often leaves you with a lot of questions.
If you are in any doubt about what you should be declaring to the taxman, I would give HMRC a call- they are super helpful and will be able to advise you on your personal circumstances. Please keep in mind that I am in no way an expert on taxes, and this blog post is based around my own experience when speaking with HMRC about my own income.
What side hustles do you need to declare?
In April 2017, a policy was put into place whereby you can earn up to £1,000 in Trading Income Allowance before having to declare this money to HMRC. This is perfect if your side hustles typically earn you less than around £80 per month. Check out your eligibility for Trading Income Allowance here.
Trading income includes absolutely anything that generates additional income- anything from survey websites, to dog sitting, to craft sales.
If you earn more than £1,000 in trading income over the tax year, you need to declare this to HMRC through a self-assessment form.
HMRC says that you must keep thorough and accurate records of all trading income and expenses (if applicable), even if you earn less than £1,000 in trading income over the course of a year. Recording your additional income is an important habit to get into, especially if you end up earning more throughout the year than you originally expected to (a nice problem to have!)
What side hustles don’t you need to declare?
The one side hustle that you don’t need to declare to HMRC, is matched betting. Matched betting counts as gambling winnings (even though it’s totally not gambling with your money!), and even if you make thousands of pounds from matched betting like many have done before, it’s exempt from tax.
How much will my tax bill be?
The amount of tax you pay on side hustle income will completely vary from person to person. Most people have a personal tax allowance of £11,850 per year, and you can get an idea of your own personal allowance here. Any income above £11,850, will be taxed at a rate of 20%. If your total income over the tax year is less than £11,850, you won’t be taxed.
If your salary and your side hustle income exceeds £46,350, you will be taxed at a rate of 40% on anything that exceeds this figure. And if you’re seriously minted, and earning over £150,000, your income will be taxed at a rate of 45% on anything that exceeds this figure.
(Facts & figures correct as of October 2018).
Learn to love spreadsheets
To keep things as simple as possible, make sure that you keep track of your side hustle income in an Excel spreadsheet, and save and record any invoices, receipts, bank statements and emails where possible. Your side hustle may seem small now, but who knows where it could take you within the next year! It’s best to keep records as you go along to avoid a big headache at the end of the tax year.
Contact HMRC yourself
The best thing you can do if you are unsure about your own situation, is to contact HMRC yourself via their helpline or webchat service.
Income tax calculator
If you want to try and predict how much money to set aside for your tax bill, try using an online income tax calculator to get a better idea of what you will pay. It won’t be 100% accurate, but at least you can start to build this into your budget and start setting aside money for when that fateful bill comes through.
You might also enjoy reading how freelance writing could be your next profitable side hustle, an introduction to selling on Etsy and how to save money in London today.