According to recent research, almost 50% of adults in the UK have a second income stream, commonly called a side hustle. While the proportion is even higher among young people, side hustles are no longer the preserve of Gen Z – almost a third of 45-54 years olds are now reported to be juggling a second source of income alongside their main job.

As the popularity of side hustles has grown, so too have the misconceptions around when and how tax applies to that secondary income source. Most employees are used to having their tax obligations dealt with by their employer, without needing to think about how much tax is due and when. HMRC issue a tax code, the employer applies that code to deduct income tax from gross pay along with National Insurance Contributions (NIC), and they then pay the combined amount over to HMRC on behalf of the employee.

But if an employee starts a side hustle, they might need to start completing tax returns and dealing with tax payments. Whilst rumours of a new side-hustle tax are entirely false, the tricky point is that the tax implications and compliance obligations depend on the nature of the side hustle. One person’s side hustle might be classed as self-employment (meaning tax and NIC are due), while another individual may be operating on a smaller scale, more hobby-basis, with no tax payable.

Help is at hand

To help side hustlers understand their tax obligations, the ATT has produced a YouTube video: Side hustles – top tax myths busted. Here, we uncover the truth behind some of the common misconceptions on whether and how side hustles are taxed, and explain what people need to do to keep their side hustle tax affairs in order. The video looks at when side hustles might need reporting to HMRC, and gives some quick tips on how side hustlers can keep their tax affairs in order.

HMRC have also launched a Help for hustles online resource which contains guidance on the tax rules for side hustles of all types, whether that’s selling goods or services online, working outside your main job, or renting out a property or spare room.

Earning extra income through a side hustle can be rewarding, but it may come with tax responsibilities. The above resources should help you to understand any tax implications, ensuring you can budget for any tax payments and make the most of your hard-earned money.

This article reflects the position at the date of publication. If you are reading this at a later date you are advised to check that that position has not changed in the time since. 

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