Is a side-hustle worth it?
Andrew Morgan is a Partner in the Private Client Department and can be contacted on 01323 434414 or am@stephenrimmer.com
Side-hustles and tax - everything you need to know
While lockdown restrictions have been in place, many people have had more time to try their hand at something new. Perhaps you have set up a new business to share your latest passion, or maybe this is something you have been considering for a while. Either way, if you have set up a new side-hustle', you may be concerned about the tax implications. In this article, we look at some of the key tax considerations for side-hustlers.
Do I need to report my side income and pay tax?
If you are making an income from your side business, you will need to report this income and pay tax once it reaches a certain threshold. If your total trading income - that is money made after any costs - exceeds £1,000 in any tax year, you will need to register as self-employed and pay tax. The tax year runs from 6 April - 5 April.
If you are only selling an item every so often, selling old clothes on eBay or do a bit of consultancy work here and there, you do not need to worry about paying tax if it is under the threshold.
Registering as self-employed
Once you have started trading, you must register with HMRC as self-employed by 5 October following the current tax year. As an example, if you start your business in June 2021, the tax year ends in April 2022, so the deadline for registering as self-employed is 5 October 2022.
Registering for self-assessment is straightforward, and the simplest way to do so is to register online. Once you have registered online, you will be sent a code in the post from HMRC to activate your account.
When you are registered as self-employed, HMRC will invite you to complete a tax return every year until you tell them you are no longer self-employed. If you stop your side-hustle but do not tell HMRC, you may still need to complete a tax return, so it is important to let HMRC know as soon as possible.
When do I need to file a return?
You must file your first tax return by 31 January after the full tax year. So, if you began your business in December 2020, the 2020/21 tax year ended on 5 April 2021, and so you must submit a tax return by 31 January 2022.
Paying tax
You will need to keep records of your incomings and outgoings. You may wish to open a separate bank account to keep track, and you should keep evidence of spending. Many business owners find this to be a burden, so you may wish to look into software, apps or even bank accounts that help you to do this.
The amount of tax you pay will be dependent on your income. After you complete your tax return, you will be given a sum that is due. If you cannot pay the full amount at once, you can apply for time to pay' and pay the amount in instalments. However, there is a small amount of interest charged.