How to avoid tax surprises on your side hustle

Callum Tingle, Accountant and Partner at Fresh Business Solutions, also runs an axe-throwing business.

At a glance

• HMRC launched ‘Help for Hustles’ campaign to help taxpayers understand side hustle obligations.
• Rules impact new types of business owners such as content creators and influencers.
• Accounting experts and seasoned side hustlers give their advice for staying compliant.

Many individuals are finding creative ways to turn their passions into income, with a Finder survey noting that 39% of British adults have a side hustle in 2025.

Earlier this month HMRC launched its Help for Hustles campaign as part of a push to help reduce the hidden economy tax gap (about £2.2 billion in the 2022-2023). It reconfirms that anyone generating more than £1,000 from their side hustle should check their tax obligations using HMRC’s new guide. 

Put simply, anyone earning over £1,000 from self-employment in a tax year must declare it via Self Assessment. This trading allowance lets side hustlers keep small earnings tax-free, unless they already file a tax return.

However, the taxation landscape is growing more complex. New income streams are rapidly emerging, with influencers and content creators monetising their online presence through partnerships and ad revenue. At the same time, new regulations mandate platforms like Vinted, eBay, and Airbnb to report earnings over €2,000 (£1,700) or 30+ transactions per year.

We spoke with tax experts – some of whom are side hustlers themselves – about how to avoid nasty surprises at tax time.

Decluttering or trading activity?

The first thing to do is classify your business. The occasional selling of personal belongings, such as second-hand clothing or household goods, is not typically considered taxable. However regular, systematic sales is deemed trading activity by HMRC, particularly where goods are purchased with the intent of resale.

Side hustlers need to make this distinction, as trading income may be subject to tax. Georgia Gibson-Smith, Senior Manager at Menzies, says: “The tax treatment of online sales depends on the nature of the transactions. Accountants must assess each client’s activity and consider the ‘badges of trade’ to determine whether they should be registered for Self Assessment.”

Accountants must ensure that clients fully understand their reporting obligations, and the implications of non-compliance. Whether dealing with digital entrepreneurs, gig economy workers, or occasional sellers, Gibson-Smith says clear guidance is essential.

Separate personal and business finances

Unlike salaried income, where tax is automatically deducted, those with side hustles are responsible for setting aside money for income tax and National Insurance.

Dave Syers, Accountant and Partner at Syers McGill, says: “A lot of side hustlers fall into the trap of not setting enough money aside for tax.

“A good rule of thumb is to save around 20-30% of any income earned from your side hustle to cover your tax bill, however this is completely dependent on the amount of employment income earned.”

For Syers, a simple but effective task is setting up a separate bank account for business earnings and expenses: “Not only does this make tax calculations straightforward, but it also ensures you don’t mix personal and business finances.”

Register for tax efficiency

Once your side hustle gets off the ground, it is worth considering how you register it with HMRC. A business can be registered in different structures, each of which have their own tax benefits and responsibilities. Choosing whether to register as self-employed, a sole trader or a limited company will depend on the nature of your business and your earnings.

Callum Tingle, Accountant and Partner at Fresh Business Solutions who also runs an axe-throwing business, says: “It’s crucial to structure your side hustle in a tax-efficient way, just in case it takes off. We set up The Axe House as a Limited Company to maximise tax efficiency, since my personal tax allowances were already being used by my main business, Fresh Business Solutions Limited. If we had started as a sole trader or partnership, it would have ended up costing me more in tax!”

Maintain records for claiming expenses

Keeping accurate records is crucial for staying compliant and managing your taxes effectively. By tracking income and deductible expenses, you can ensure you’re in the best position to reduce your tax liability.

Mike Parkes, Technical Director at GoSimpleTax, says: “It’s crucial to maintain accurate, up-to-date records of sales, business costs, including figures and dates, and proof of purchases to be claimed as expenses.”

Parkes recommends using bookkeeping software to automatically record transactions and provide them in convenient overviews.

He adds: “Another tip is to regularly set aside time to update side hustle financial records to make the process more manageable.” 

Influencers face more complexity

Influencers commonly receive gifts from companies, such as payments-in-kind or free products or services, where there is no prior agreement for them to promote.

Francesca Wilson, Associate, Tax Resolutions at Crowe UK says it’s for the influencer to self-assess whether items are treated as being sent with gratuitous intent or as payment-in-kind – and HMRC to challenge this if it disagrees.

She says: “Payment-in-kind that can be converted into money by selling, renting or exchanging, would likely constitute taxable income.”

Side hustlers – especially those with more complex business structures – can avoid unexpected surprises when it comes to tax by working closely with their accountant to clarify their obligations, allowing them to spend more time focusing on growing their side income with confidence.

More information on the IFA Tax Series 2025, including MTD for income tax readiness and capital gains tax refresher, here.