For the purpose of this blog, we’ll focus on the tax side of things. For other support we recommend you visit Happy Side Hustle (https://www.happysidehustle.co.uk/roadmap)
You’ve set up a side hustle, and you’re happily making a few sales every week, but someone has just mentioned the words “HMRC”, “tax return”, and/ or “Self-Assessment” and now you’re freaking out big time.
Oh no! Should I have registered the side hustle with HMRC?
Feck! Do I have to pay tax?
OMG! How much?
Eek! When does this need to be paid?
First, take a deep breath
This blog will tell you all you need to know today, and where you can get more information.
You don’t need to do anything until your sales exceed £1,000
If your total sales (money received for goods sold) from eBay, Etsy, Amazon, and others are under £1,000 in any given tax year then you do not need to register for self-assessment.
When is the tax year?
The tax year runs from the 6th April to 5th April every year. Therefore today (11thJanuary 2021) we’re in the tax year 2020/2021 otherwise referred to as the period from 6th April 2020 to 5th April 2021.
If your sales exceed £1,000
If your total sales exceed £1,000 in any given tax year then you must register for self-assessment. You can do so on HMRC’s website: https://www.gov.uk/register-for-self-assessment.
When do I have to pay the tax?
You have almost nine months to pay the tax after the tax year. Any tax due must be paid by 31st January after the tax year.
So if you set up your side hustle in the summer of 2020, and your sales have exceeded £1,000 between then and now (or at least predicted to by 5th April 2021) then any tax due will have to be paid by 31st January 2022.
How much tax do I have to pay?
This varies depending on any other income you may have (salary, wages, rental income). You also have a tax free allowance every year (in 2020/2021 this is £12,500). This means that you can earn up to £12,500 without paying income tax. Then, whilst rates differ slightly between Scotland and the rest of the UK, for simplicity expect to pay 20% on your profits, so start saving today. If you don’t need to pay any income tax, then you can buy yourself a little extra treat with the savings you put aside.
What are my profits?
Profits are what is left from your sales, after you have deducted your expenses.
What expenses can I claim?
Direct materials, marketing, training courses directly related to your side hustle, Happy Side Hustle‘s membership fees, accountancy fees, books on marketing/ running a business or anything relating to your side hustle, plus a few other costs. For more information visit a previous blog I have written: What can I claim as a business expense?
What else do I need to pay HMRC?
For the tax year 2020/2021, if your profits exceed £6,475 you will need to pay a further tax called national insurance. This is £3.05 per week since you’ve had your side hustle (up to a maximum of 52 weeks). This is called Class 2 National Insurance.
If your profits exceed £9,501, you will also have to pay a further 9% tax on anything over £9,501. This is called Class 4 National Insurance
Hopefully you can stop panicking and know you have everything under control.
One last VERY IMPORTANT tip!
Above all, NEVER ever develop a hang up about paying tax. Call me crazy, but paying tax is good. It means you are making things people want. It means you have the start of a business. It means you are one step closer to financial freedom. I go into this in more detail in The Magical Mix of Money & Tax but for now, trust when I say, paying tax is a sign of success.
All you need to know:
- Tax year runs from 6th April to 5th April.
- You must register with HMRC if your sales exceed £1,000.
- You will pay around 20% income tax on your profits (assuming you have other income over £12,500).
- You may also have to pay up to £158.60 NI, if your profits are more than £6,475.
- You could also have to pay a further tax 9% NI if your profits are more than £9,501.
- Tax and National Insurance must be paid by 31st January following the end of the tax year.
You can find out more information in The Magical Mix of Money & Tax
I also offer a 2hr tax return assistance service, priced at £299 but for all side hustlers I am offering a group zoom session priced at £99. Just let Julie (Founder of Happy Side Hustle) know that you are interested and she will forward your details on to me. Once I get at least 3 names I will get in touch to arrange a time and date.
For other frequently asked questions visit our previous blog: 9 self-assessment questions you need answered to do your tax return
By Helen Monaghan
ABOUT THE AUTHOR
Helen Monaghan is a Chartered Management Accountant, accredited NLP Practitioner & Finance Coach. Both a psychology graduate and an accountancy graduate, she has authored three business books, which beautifully bring together psychology, finance, and tax to empower the reader about money. Helen is also the founder of HM Finance Coaching Ltd, a company that provides financial education and business mindset coaching to small businesses across the UK, in addition to accountancy services for limited companies in Scotland.
© HM Finance Coaching Ltd