Freelancing & Taxes: A Guide to Managing Side Hustle Income in the UK

Whether you’re running social media campaigns after hours or turning your photography passion into profit on weekends, side hustles in the UK are booming. Recent statistics show a 32% increase in self-employed professionals between 2020 and 2024—spanning industries from content writing to IT consulting. While this entrepreneurial spirit is inspiring, many freelancers overlook one key aspect of managing a successful side hustle: taxes.

Understanding your tax obligations isn’t just about avoiding penalties. It’s also about maximising your income and ensuring your hard work reaps the rewards it deserves. If you're confused about how UK tax laws impact your side hustle, this guide will break it all down in plain English.

Need help with your taxes? Virtue Accountants specialise in guiding UK freelancers and side hustlers through tax complexities. Now, let's get started.

What Counts as a Side Hustle?

A side hustle is any activity that earns you extra income outside of your main job. Popular examples include:

• Digital Marketers running advertising campaigns for small businesses in the evenings.
• Photographers covering weddings and events on weekends.
• Locum Staff earning flexible incomes in healthcare or education.
• Influencers earning through sponsorship deals or affiliate links.
• Writers freelancing for blogs or creating content for clients.

It’s crucial to remember that any income from these activities is taxable, even if you're already paying tax through your day job. This includes earnings from side hustles, freelancing, or any other form of additional work. Failing to report this income can lead to penalties or issues with tax authorities, so it’s important to keep accurate records and declare all earnings, no matter how small they might seem.

Do You Need to Register for Self-Assessment?

If your side hustle generates more than £1,000 per year (the HMRC trading allowance), you’re required to register for Self-Assessment and declare your earnings. Here’s how to tell if you need to register:

• Earnings over £1,000 from your side gig.
• You’re employed full-time or part-time and also earning extra income from freelance work, such as writing, graphic design, or consulting services.
• You generate income by renting out property, like an apartment or vacation home, or by selling products online through platforms like Etsy, eBay, or your own e-commerce site for profit.

Registration Deadline

You must register with HMRC by 5th October following the end of the tax year for which you’re reporting income. Late registration can result in penalties, so don’t leave this until the last minute.

How to Register with HMRC

1. Create a Government Gateway account at Gov.uk.
2. Select “Register for Self-Assessment” from the available options on the website. This step is essential to begin the process of filing your taxes as a self-employed individual or reporting additional income.
3. Provide detailed information about your income and employment, including any self-employment income, regular salary, or other sources of earnings. Ensure all details are accurate to avoid any issues later in the process.
4. After completing your registration, wait for your unique taxpayer reference (UTR) number to arrive by post. This 10-digit number is essential for filing tax returns and managing your taxes with HMRC, so make sure to keep it safe once you receive it.

Key Tax Obligations for Freelancers

Navigating taxes as a freelancer doesn’t need to be overwhelming. Here are the key points to keep in mind:

1. Income Tax

Every UK taxpayer benefits from a tax-free personal allowance of £12,570 (for the 2024/25 tax year). However, additional earnings from your side hustle could push you into a higher tax bracket.

Example:

Imagine you’re an IT professional earning £35,000 annually from your main job. If your side hustle generates an extra £15,000, your total income of £50,000 will put you in the 40% tax band for part of your earnings.

2. National Insurance Contributions (NICs)

• Class 2 NICs: These are National Insurance Contributions specifically for self-employed individuals. They are payable if the profits from your side hustle exceed £12,570 in a tax year. This ensures you continue to build your entitlement to certain state benefits, such as the State Pension.
• Class 4 NICs: These contributions apply when your side hustle profits are above £11,908 in a tax year. Unlike Class 2 NICs, the rates for Class 4 are based on a percentage of your profits. It's important to note that these are calculated separately from any NICs already deducted through PAYE at your main job, ensuring both income streams are accounted for correctly.

3. VAT (Value Added Tax)

If your annual turnover from freelance work is above £90,000, you’ll need to register for VAT. For many sole traders, exceeding this threshold signifies business growth and is worth careful planning.

Example:

A photographer who scales up operations, investing in additional gear and taking on larger projects, could easily surpass the VAT registration threshold.

What Expenses Can You Deduct?

Freelancers can reduce their taxable income by claiming allowable business expenses. Here are some common deductions:

a) Tax-Deductible Expenses

• Office Supplies like stationery and software (e.g., Canva or Adobe Creative Suite).
• Phone Bills & Internet expenses.
• Travel Costs related to gigs or meetings.

Specific Examples:

• A photographer can claim camera gear and editing software.
• A content writer can claim grammar tools like Grammarly and laptop upgrades.

b) Home Office Expenses

If you work from home, you can claim part of your rent, utilities, or a flat-rate allowance for operating your business.

Example:

You use a dedicated room as your home office for freelancing. You can claim a portion of your electricity and internet bills accordingly.

c) Professional Development

Training costs, certifications, and industry events directly related to your work are also deductible. For instance, if you’re a marketer attending a Google Ads workshop, that’s an allowable expense.

How to Stay Organised

Staying on top of your finances is critical to managing your side hustle taxes efficiently. Here are some tips:

1. Record Keeping

Keep receipts and maintain thorough records of all income and expenses. Digital tools like QuickBooks or a simple spreadsheet can make this process easier.

2. Separate Finances

Open a dedicated business account to streamline bookkeeping and separate business from personal finances. This makes tracking expenses and invoicing much easier.

3. Know Your Deadlines

Mark important tax dates, including:

• 31st October for paper tax returns.
• 31st January for online submissions and payment of tax owed.

Common Mistakes Freelancers Make

1. Not Setting Aside Money for Taxes

One of the most common mistakes is spending your income without reserving funds for tax bills. A smart rule of thumb is to set aside 20% to 30% of your earnings for taxes.

2. Missing Deadlines

Filing late results in penalties starting at £100, even if you don't owe any tax.

3. Forgetting to Claim Expenses

Neglecting to claim allowable expenses means paying unnecessary tax. Always document what you spend on your side hustle.

Real-Life Example:

A digital marketer underestimated their tax bill because they failed to record small but regular payments from clients. This resulted in an unexpected tax bill of £2,000.

How Virtue Accountants Can Help

Virtue Accountants simplifies the tax process for freelancers and small business owners. With years of experience as qualified chartered accountants, we can:

• Provide personalised advice on allowable expenses.
• Assist you with Self-Assessment tax returns.
• Help you set up efficient bookkeeping systems.

Avoid costly mistakes and focus on growing your business. Contact us today for expert guidance!

Manage Your Side Hustle Finances with Confidence

Managing side hustle taxes doesn’t have to be stressful. With the right knowledge, tools, and expert support, you can focus on growing your business while staying compliant with HMRC.

Have questions about your side hustle taxes? Virtue Accountants can help you stay compliant while maximising your earnings. Book a consultation today!

Links to Useful Resources:

• HMRC Self-Assessment Registration
• HMRC Guide to Allowable Expenses