How UK Income Tax Works When You Have a Side Hustle
So, you've got a job and a side hustle? Whether you're selling crafts online, freelancing, or picking up weekend gigs, it’s great to earn some extra money — but it can also raise questions about tax.
This guide will walk you through how the UK income tax system works when you have both employed income and side hustle profits.
We’ll keep it simple, break it down with examples, and flag a few things to be aware of (without getting too complicated).
1. Your Employed Income: PAYE Recap
If you’re employed, you’ll be paying tax through the PAYE system.
That means your employer takes care of your tax and National Insurance (NI) before you get paid.
You also get a Personal Allowance (currently £12,570) — the amount you can earn before income tax applies.
Example
Sarah earns £28,000 from her marketing job. Her employer handles all her PAYE tax and NI.
She doesn’t need to do anything extra — unless she starts earning more money from a side hustle.
2. Adding a Side Hustle: What Changes?
Once your self-employed income goes over £1,000 in a tax year, you need to:
Register with HMRC as self-employed
Submit a Self Assessment tax return each year
Your tax bill will be based on your total income (employed + self-employed), not just the side hustle part.
Example
Sarah earns £28,000 from her job and makes £3,500 profit from selling handmade prints.
Her total income is now £31,500, and she’ll pay tax on that.
3. How Your Tax Is Calculated (Think: Buckets!)
The UK tax system works like a series of income buckets. Your income fills each one in turn:
Personal Allowance bucket – Up to £12,570 → taxed at 0%
Basic Rate bucket – £12,571 to £50,270 → taxed at 20%
Higher Rate bucket – £50,271 to £125,140 → taxed at 40%
Additional Rate bucket – Above £125,140 → taxed at 45%
Your employed income usually fills the first bucket (or more), and your side hustle income spills into the next one.
Example 1: Basic Rate Only
Sarah’s £28,000 salary uses up her Personal Allowance and some of her Basic Rate bucket.
Her £3,500 side hustle profit pours into the Basic Rate bucket → taxed at 20% = £700 tax.
Example 2: Tipping Into Higher Rate
James earns £48,000 from his job and £10,000 profit from his wedding photography side hustle.
His total income is £58,000.
The first £2,270 of his side hustle income stays in the Basic Rate bucket → taxed at 20% = £454
The remaining £7,730 spills into the Higher Rate bucket → taxed at 40% = £3,092
Total tax on side hustle = £3,546
💡 Only the portion above each threshold is taxed at the higher rate — not the full amount.
4. What About National Insurance?
In addition to income tax, you may also pay self-employed National Insurance:
Class 4 – if profit is over £12,570/year → 6% on profits between £12,570 and £50,270, then 2%
Example
If James’s side hustle profit is £10,000, he doesn’t pay Class 4 NI (it’s under £12,570).
5. Key Deadlines and Responsibilities
You’ll need to:
Register with HMRC by 5 October after the end of the tax year you started your side hustle
Submit your Self Assessment by 31 January
Pay tax and NI owed by the same 31 January deadline
📌 It’s your responsibility to track your income, claim any allowable expenses, and calculate what you owe — or use tools to help.
6. Things to Be Aware Of (But Not Worry About Yet)
As your income grows, a few more tax rules could start to apply.
These don’t affect everyone, but it’s good to know they’re on the horizon:
High Income Child Benefit Charge – kicks in if your total income goes above £60,000
Student Loan Repayments – could apply if your total income is above the repayment threshold
Payments on Account – if your tax bill is over £1,000, HMRC might ask you to pay towards next year’s tax upfront
For now, just focus on understanding how the buckets work and keeping good records.
FAQs
Q: Do I pay 40% tax on all of my side hustle income if I’m a higher-rate taxpayer?
No — only the part that pushes your total income into the higher bracket is taxed at 40%.
Q: What if I earn less than £1,000 from my side hustle?
You can use the £1,000 trading allowance, so you don’t need to register or report it (unless you want to claim expenses).
Q: Do I need to start a company for my side hustle?
No — you can simply register as a sole trader. No need to set up a limited company unless it makes financial or legal sense later.
Need help keeping track of what you earn and what you owe?
👉 Download the Side Hustler Companion — a simple, beginner-friendly tracker that helps you:
Record income and expenses
Calculate your tax bill
Know what to save and when to pay it
Get organised, stay compliant, and focus on growing your hustle — not stressing about tax.
