New Financial Year, New Earning Opportunities, But Equally, New Implications For Reporting Your Income!
The cost of living has really put pressure on families, and more and more people are turning to side hustles to earn extra income to keep the lights on and tummies fed. As we go into the new financial year, I'm just going to go over the basics of your legal requirements for reporting any additional income to the HMRC, as it's important to remember that any additional income is likely to be taxable, depending on the amount earned, and so it needs to be thought about properly.
Let's explore what you need to know about reporting side hustle income in the UK and how to make sure you're not caught out by the taxman!
Understanding Your Tax Obligations
If you're earning money from a side hustle, you're considered self-employed for tax purposes. This means that you're responsible for reporting your income to the HMRC and paying any tax that's due. It's important to keep accurate records of your income and expenses so that you can report your earnings correctly. You can do this using a spreadsheet, accounting software or by hiring an accountant to help you.
The Trading Allowance In the UK
You're allowed to earn up to £1,000 tax-free from self-employment income. This is known as the trading allowance, and it's designed to help small businesses and self-employed individuals who earn a low income. If your side hustle income is less than £1,000, you don't need to report it to the HMRC or pay any tax on it. However, if your income is over £1,000, you'll need to report it and pay tax on the excess amount.
You'll need to register for self-assessment and make a self-assessment declaration every year showing your income and expenditure. You do not need to send in proof of expenses when you submit your tax return. But you should keep proof and records so you can show them to HM Revenue and Customs (HMRC) if asked.
One big tip to avoid any scary bills is to keep 20% of your extra earnings and put them into a savings account (such as Chip), and when you do get the bill, you've got the money there to pay it! It will likely be less than you have put away once you take off any applicable reductions, but you may have to make a payment on account for the following year as well., so its good to have that extra revenue cash sat there to soften the financial blow!
Payments are paid to HMRC twice a year; on 31st of January and the 31st of July, and are designed to help spread the cost of your tax bill. They are calculated based on your previous year's tax bill (including national insurance if you're self-employed), and each payment is about half of that previous year's bill.
Claiming Expenses
If you're self-employed, you're entitled to claim certain expenses against your income. This can help to reduce your tax bill and make your side hustle more profitable. However, if you're using the trading allowance, you cannot claim expenses against your income. This is because the allowance is designed to cover your expenses, so you don't need to claim them separately.
Costs you can claim as allowable expenses
These include:
office costs, for example stationery or phone bills
travel costs, for example fuel, parking, train or bus fares
clothing expenses, for example uniforms
staff costs, for example salaries or subcontractor costs
things you buy to sell on, for example stock or raw materials
financial costs, for example insurance or bank charges
costs of your business premises, for example heating, lighting, business rates
advertising or marketing, for example website costs
training courses related to your business, for example refresher courses
If you may be able to claim a proportion of your costs for things like:
heating
electricity
Council Tax
mortgage interest or rent
internet and telephone use
The amount you can claim for the above will depend on how much time you work from home, and the amount of the home you use for your business. Additional expenses you may be able to claim for include, but aren't limited to:
repairs and servicing
vehicle insurance
fuel - You won't be able to claim for fuel if you claim for business mileage, as the fuel cost is covered in your mileage rate.
parking
hire charges
vehicle licence fees
breakdown cover
train, bus, air and taxi fares
hotel rooms
meals on overnight business trips
You cannot claim for:
non-business driving or travel costs - Keep a log of your business miles!
fines
travel between home and work
Side hustles can be a great way to earn extra income, but it's important to remember that you need to report this income to the HMRC. By understanding your tax obligations, making use of the trading allowance and keeping accurate records, you can ensure that you stay on the right side of the taxman. Remember, if you're ever unsure about your tax obligations, it's always best to seek advice from a tax expert.