The Side Gig Boom: What You Need to Know About Taxes
Side gigs have exploded in popularity in the UK just as much as elsewhere. With the cost of living rising faster than incomes, more and more people are taking on extra work to supplement their earnings. This extra income can be crucial for covering expenses. However, it also raises an important question – do you need to pay tax on your side gig?
The short answer is: it depends. There are some key factors that determine your side gig’s tax obligations. This blog breaks it down so you can keep more of the money you earn.
What is Considered a Side Gig in the UK?
A side gig is any additional job or gig you take on outside of your regular 9-5 employment. Common examples include:
- Driving for Uber or other rideshare platforms
- Delivering food via apps like Deliveroo or Just Eat
- Selling products on Etsy or eBay
- Renting out property on Airbnb
- Consulting or freelance work
Essentially if you are earning extra money from any goods or services you provide, it can be classified as a side gig.
Do I Need to Pay Taxes on My Side Gig Income?
Whether or not you need to pay taxes on your side gig depends largely on two things:
- How much you earn
- Whether it counts as taxable income
HMRC allows anyone earning income to deduct the first £12,570 (in 2022/23) tax-free. This is called the personal allowance. So if your side gig brings in less than £12,570 per year, you likely don’t need to pay any income taxes on that money.
You also get a £1,000 tax-free trading allowance each year for certain types of side earnings. We’ll break down specifics in the sections below.
What Counts as Taxable Income in the UK?
The technical term for side gig earnings is “unearned income.” Different types of unearned income fall under different HMRC classifications that impact how they are taxed.
Common examples include:
- Self-employment income
- Rental income
- Capital gains
Understanding the classification of your extra earnings is key to knowing if or how they will be taxed.
Now let’s break down some of the most popular side gig categories:
Selling Second-hand Items Online
If you occasionally sell personal items for extra cash on sites like Facebook Marketplace, you likely won’t owe any taxes up to £1,000 thanks to the trading allowance.
If your sales exceed £1,000 per year, you’ll need to report this income and any profits on a self-assessment tax return. The profit left over after deducting allowable expenses is what gets taxed as ordinary income.
Actively buying and reselling items for profit at higher volumes counts as running a business. Registering as self-employed provides tax benefits like deducting allowable business expenses.
Driving for Uber, Deliveroo etc.
Income earned from rideshare driving, food delivery, and other app-based gig work counts as self-employment income and is fully taxable in the UK.
You’ll need to register as a sole trader or limited company, report your earnings on a self-assessment return, and deduct eligible business expenses.
Apps may provide tax statements showing what you earned. Compare these to your own mileage and earnings records for accuracy before filing.
Renting Out Property on Airbnb
If you rent out all or part of a property via Airbnb within the Rent a Room scheme, the first £7,500 of income per year is tax-free. The threshold is halved if you share the income.
For income above £7,500 annually, you’ll need to report it on your tax return and pay applicable taxes minus any allowable deductions like fees or mortgage interest.
Frequently Asked UK Tax Questions
Confused about how your unique side gig might be impacted by UK taxes? Below are answers to some commonly asked questions:
Q: What records do I need to keep for self-employment tax?
A: You’ll need income statements, mileage logs, receipts for expenses, tax statements, and bank records showing deposits.
Q: When are self-assessment tax returns due?
A: 31 January following the end of the tax year on 5 April. So for 2022/23 taxes, the deadline is 31 January 2024.
Q: What tax rate do I pay on side gig profits?
A: It depends on your total income and which tax band you fall under for the year. Side gig profits get taxed as ordinary income.
Q: Should I form a limited company for my side gig?
Forming a UK limited company provides legal and financial protections. It requires more admin but allows you to claim more expenses to reduce tax liability.
How People Should File Taxes on Side Gigs
Once tax time rolls around, how should you go about filing on your extra income? Here are some key tips:
- Maintain thorough income and expense records
- Report income and deductions appropriately on your self-assessment tax return
- Pay estimated taxes quarterly if expecting to owe more than £1,000
- Hire an accountant if you need help navigating deductions and liabilities
This will ensure you stay compliant, maximize write-offs, and avoid penalties from HMRC.
Let the Money You Earn Stay in Your Pocket
With the right planning, you can hopefully keep more of the hard-earned cash from your entrepreneurial efforts. Just be diligent about logging expenses, and be sure to set aside a portion for taxes if needed.
For more information contact Ballards LLP at 01905 794 504
Disclaimer. This article has been prepared for information purposes only. Formal professional advice is strongly recommended before making decisions on the topics discussed in this release. No responsibility for any loss to any person acting, or not acting, as a result of this release can be accepted by us, or any person affiliated with us.