Self Assessment Tax Return for Side Hustles

Is it necessary to file a self assessment tax return for side hustlers in the UK in 2025?

Many side hustlers, like freelancers, entrepreneurs, and gig workers underestimate how quickly extra income can create new tax obligations.

Having an extra income through a side hustle can feel empowering – until it’s time to pay tax!

This blog will guide you through everything you need to know about to file a self assessment tax return for side hustles in 2025.

Reach out to one of our professionals to get to know about self-assessment tax returns for side hustles in the UK. Get in touch with us and you will be provided instant professional help!

What Is Self-Assessment?

Self Assessment is the system used by HMRC to collect Income Tax from individuals with certain types of untaxed income.

Since tax is automatically deducted from the wages of employees through the PAYE system, other sources of income must be reported to HMRC through an Annual Self Assessment tax return.

The £1,000 Trading Allowance Explained

The £1,000 Trading Allowance is a tax exemption in the UK for individuals who earn up to £1,000 per tax year from self-employment or casual trading activities.

It is designed to simplify taxes for side hustles or miscellaneous income sources, allowing eligible individuals to earn this amount tax-free without needing to register for self-assessment.

How The Allowance Works

The way trading allowance applies depends on your total gross trading income for the tax year (6 April to 5 April).

If your gross trading income is £1,000 or less, then you will get full relief and do not have to pay tax on this income.
If it is more than £1,000, then you must register for Self Assessment and declare your income. When you file your tax return, you have two options: either claim the £1,000 allowance or deduct your actual allowable expenses.You should choose the option that leaves you with the lowest taxable profit.

Which Incomes Are Covered?

The allowance can be used for income from:

Self-Employment, like freelance work or a sole trader business.
Selling goods online through platforms like Ebay.
Providing casual services like tutoring, gardening, or babysitting.
Hiring out personal equipment, like tools.

Which Incomes Are Not Covered?

Trading allowance cannot be used for:

Incomes from a business partnership.
Incomes from a company that you or a connected person controls.
Incomes from your employer or your spouse/civil partner’s employer.
Income already covered by other reliefs such as, Rent a Room Scheme.

Claiming The Allowance

If your gross trading income is £1,000 or less, then no action is required to claim the allowance, but you should keep records of your income.

But if it exceeds £1,000, then you should:

Register for Self Assessment by the 5th October.
Submit a tax return, where you can choose to deduct £1,000 allowance or your actual expenses.
Calculate and pay any tax due based on your final taxable profit.

Registering for Self Assessment for Your Side Hustle

Following steps have to be followed while registering for Self Assessment 2025/26:

First, find out if you need to register or not. If you are self-employed and your gross trading income is over £1,000 in the 2025–2026 tax year, you are required to register.
Gather your necessary information like, your National Insurance number, personal and contact details and the start date of your side hustle.
Create a Government Gateway account. This is used to access all of HMRC’s online services.
After logging in, register for Self Assessment. You will typically register as a ”Sole Trader” for a side hustle.
After processing your registration, HMRC will send you a 10-digit Unique Taxpayer Reference (UTR). You’ll need this number every time you file a tax return.

Key Deadlines For The 2025/26 Tax Year

Following are the deadlines to be kept in mind for the 2025/26 tax year:

The tax year in the UK for 2025/26 ends on April 5, 2026.
The registration deadline for self assessment is October 5, 2026.
The online tax return and payment deadline is at 11:59 pm on January 31, 2027.
The paper tax return deadline is 11:59 pm on 31 October 2025.

Understanding Allowable Expenses

When you run a side hustle, HMRC lets you deduct “allowable expenses” from your income. This lowers your taxable profit, which means you pay less tax.

Just remember the golden rule: The expense must be “wholly and exclusively” for your business. So, if you use something for both business and personal life, you can only claim the business portion.

Office and Equipment

You can claim for essential business supplies, including:

Stationery and postage.
The business-related part of your phone and internet bills.
Software subscriptions (for example, for a design program).
Small tools and equipment, like a new printer or laptop.

Working from Home

If your home is your office, you can either:

Calculate your actual costs: Work out the proportion of your bills (like heating and electricity) used for your business.
Use HMRC’s flat rate: If you work at least 25 hours a month from home, you can claim a flat rate. Just remember, this doesn’t cover your phone or internet, which you’ll need to calculate separately.

Travel and Mileage

When you travel for your side hustle, you have a couple of options:

Use the flat-rate mileage allowance: This is the simplest option. For a car, it’s 45p per mile for the first 10,000 miles in a tax year, and 25p after that. This covers all your vehicle running costs.
Claim actual costs: You can track the exact costs for fuel, insurance, and maintenance and claim the business proportion.

For all travel, you can also claim other costs like parking fees, tolls, and public transport fares.

Other Common Expenses

Don’t forget these everyday expenses:

Marketing and advertising: Like website hosting fees or flyers.
Stock and materials: Anything you buy to create your goods.
Professional fees: Such as accountancy or legal advice.
Training: Courses that directly help you improve your skills for your business.

National Insurance Contributions (NICs) for Side Hustlers

The rules for self employed NICs changed significantly from April 2024. For the 2025/26 tax year, the rules are as follows:

Class 2 NICs

You are no longer required to pay Class 2 NICs. Instead if your profits are £6845 or more, you are treated as having paid them to protect your state pension entitlement.
If your profits are less than £6845, you do not need to pay anything but choose to pay voluntary contributions to protect your National Insurance record. The voluntary rate is £3.5 a week for 2025/26.

Class 4 NICs

You must pay Class 4 NICs on your profits above a certain threshold. For the 2025/26 tax year, you will pay:

6% on profits between £12,570 and £50,270.
2% on profits above £50,270.

Step-by-Step Example Calculation

Lets imagine a scenario, where Annie has a full time job and a side hustle selling NFTs online. Now the Personal Allowance is £12,570. Now:

Her main employment income = £30,000.

Side Hustle income = £6000

Side Hustle expenses = £2500

Option A (Using Trading Allowance):

£6000 – £1000 (trading allowance) = £5000 (taxable profit)

Option B (Using Allowable Expenses):

£6000 – £2500 (expenses) = £3500 (taxable profit)

Option B is a lower taxable profit as compared to A, so Annie should claim her allowable expenses.

What Happens if You Don’t Declare Income?

Failing to declare taxable income is considered a serious offense that can lead to significant penalties, interest and even criminal prosecution.

Penalties And Interest

If you do not inform HMRC that you have a new taxable income, you may be charged a “failure to notify” penalty.
If you pay your tax bill late, HMRC will charge interest on the outstanding amount.
The size of the penalty depends on HMRC’s assessment of your conduct, from carelessness to deliberate concealment.

Investigation And Prosecution

In most cases, HMRC seeks a financial settlement to recover unpaid tax, interest, and penalties.
HMRC can look back up to 20 years for deliberate tax evasion.
In the most severe cases of tax fraud, you could face prosecution and a prison sentence.

Tips For Managing Your Side Hustle Taxes

Handling taxes for side hustles can involve complexities, so following these tips can help ensure compliance and help manage tax effectively.

Keeping Meticulous Records

Maintain accurate and up-to-date records of all your side hustle’s income and business expenses, like dates and figures.
Keep all your receipts and invoices safe.
Set up a separate bank account for your side hustle to make tracking income and expenses easier.
Use accounting software to manage your finances, categorise transactions, and make tax filing returns easy.

Understanding Allowable Expenses

You can reduce your taxable profit by deducting expenses that are “wholly and exclusively” for business use.
Some common allowable expenses include equipment costs, office supplies, travel expenses, marketing costs, and platform fees.

Save Money For Your Tax Bill

A good rule of thumb is setting aside funds of about 25-30% of your side hustle income to cover your tax liabilities.
As your hustle grows, consider whether registering as a limited company could offer better tax efficiency.

Seeking Professional Advice

If you are unsure about your tax obligations, consult a tax professional or accountant.
You can also use the HMRC Check if you need to send a Self Assessment tax return tool to confirm your filing requirements.

Conclusion

Understanding how Self Assessment works is essential for UK side hustlers. It ensures you stay compliant with HMRC rules while keeping more of what you earn.

By following the right steps — registering on time, tracking expenses, and filing accurately — you can manage your taxes efficiently and maximise your side hustle income.

Get in touch with tech-driven professionals if you want to choose the solution to tax burden or accounting problems in the UK for your income. We will ensure to offer the best services.

Get in touch with our young, clever, and tech-driven professionals if you want to choose the solution to tax burden or accounting problems in the UK for your income. We will ensure to offer the best services.