Got a hobby and want to make some money from it? Starting a side hustle can be a great way to test the waters and see if you can receive an income from doing something you love, while still having the safety of your current employment. But having to learn your obligations and the requirements when running a side business seems overwhelming and often puts people off of starting a side business. This article is here to explain all your responsibilities when considering going self-employed alongside permanent employment.
#1. When do I need to tell HMRC about my side income and what tax do I need to pay?
Technically, HMRC allows you to earn £1,000 in a tax year (6 April to 5 April) before you are required to tell them about your extra income due to their tax-free allowance for self-starters cover. You won’t be required to pay anything on this income and you don’t have to declare it either. However, not all side jobs are included within this and have different pay brackets before you’re required to declare it. Some of these include:
- Renting out a room in your home - £7,500 a year and over.
- Trading stocks and shares - taxable gains of £12,300 a year and over assuming you have no further chargeable gains during the tax year and you are not registered for Self Assessment. The allowance is dropping to £6,000 from 6th April 2023.
- Casino or betting website winnings - these are tax-free.
- Selling your old clothes - Not tax deductible but buying and selling clothes for a profit would be.
If your side hustle/extra income is taxable, it would be advantageous to keep a record of your earnings. This can help you understand if you’re getting close to the £1,000 threshold.
A helpful way to save time can be to use an accounting software such as Crunch to record your income and expenses, and then if you earn over the threshold and need to submit a Self Assessment, all of your information on your earnings is in one easy-to-view place. If you choose to use Crunch’s Self Assessment service, this then allows our expert accountants to see all of your details on your account instantly, so you don’t have to provide us with your forms of income, one-by-one.
#2. When should I register as self-employed?
When you’re earning money outside of your normal employment, and intend to earn more than £1,000 in a tax year, then you’ll need to register as self-employed.
You’ll need to have registered with HMRC as self-employed by the 5th of October at the end of the tax year when you start your side hustle. For example, if you started your business in June 2022, then you’d need to register as self-employed by the 5th of October 2023. You can do this easily online on the Gov.uk website.
#3. How will this affect my main job?
We’d recommend checking your employment contract with your current employer. Often there are terms in your contract that state you have to ask permission to start a side hustle.
Under the implied duty of fidelity, you have an obligation not to compete with your employer. Meaning, any side hustle or job you take alongside your current employment must not compete with your current workplace. If this is ignored and it’s seen that you are competing, this could lead to dismissal. Many businesses will now include this in their contract as well.
As long as this isn’t the case and raises an issue with working time regulations, then there should be no issue as to why you can’t start your side hustle.
#4. What insurance do I need for my side hustle?
Starting a side hustle is a form of business. Therefore, it’s important to consider the right type of business insurance you’d need to cover you if there is a complication.
The insurance covers to consider for a side hustle are:
- Professional indemnity insurance - This protects you if your client loses money because of bad advice, service, or work.
- Public liability insurance - This covers you and your side hustle if someone gets injured or their financials are negatively impacted and they blame it on your side hustle.
- Home insurance - If you have an existing home insurance policy, it might be worth double checking the terms and conditions of this coverage as many home insurance companies don’t cover business activities and you’d require separate business insurance.
#5. What accounting and financial obligations are required when starting a business?
When you start a business, you have obligations to HMRC to record your income each tax year. If you earn over the £1,000 threshold then you will be required to submit a Self Assessment by the 31st of January each year and pay income tax and national insurance (NI) contributions, classes 2 and 4. Failing to submit on time can result in hefty fines. Failing to pay your income tax and national insurance contributions can result in HMRC taking measures such as repossessing vehicles and assets. It can also provide gaps in your national insurance record and can mean you won’t qualify for state benefits such as state pension and maternity allowance.
If you’re earning below the threshold, you won’t have any accounting obligations. Although, as mentioned previously, we still recommend that you keep a record of your income.
#Bonus tip - I'm a social media influencer, but I only receive gifts in exchange for content creation. Do I need to declare anything?
Calling things “gifts” creates the impression you don’t have to declare it or do anything about it, which is incorrect. If you've provided a service and you've been paid in a form other than cash or paid directly in your bank account, then there will need to be an assessment of the item to find out it's cash value at the time it's declared as a form of income. For example, if you were given shares, a car, crypto, etc, as payment for your service, an assessment would need to take place to determine that items value to calculate your income, and therefore your tax.
Earnings generated from content creation
For content creators, you might receive gifts or money in exchange for posting on social media. You'll be required to file a Self Assessment for anything above the value of £1,000 earned in a tax year (whether that's in money or the value of gifts at the time it was given). As each job and income is different, we'd recommend having a chat with an accountant to calculate your payable tax based on your case.
For further advice or support with starting a side hustle, you can chat with one of our expert advisors or speak directly with a qualified accountant for more financial-related queries for just £24.50 +VAT.
Already started a side hustle and earning over the threshold? We understand that running a side hustle and organising finances can be daunting, which is why our subscriptions offer all the support you’ll need to feel confident in your accounting. With super easy software for you to record your income and submit your Self Assessment. Give Crunch a try for 14 days completely free on our paid subscriptions.