Side Hustle While Employed: Tax, National Insurance and What to Tell HMRC

Side income alongside a job at a glance

Your salary is taxed through PAYE as usual. The side hustle is taxed separately on its profit, through Self Assessment.

The trading allowance, and what changes in April 2027

The trading allowance lets you receive up to £1,000 of gross trading income in a tax year without paying tax on it or telling HMRC. Gross means before costs, so £1,200 of sales with £400 of expenses still breaks the limit.

Above £1,000 you choose: deduct the £1,000 allowance, or deduct your actual expenses. Not both. For a side hustle with low costs, the allowance usually wins.

At Budget 2026 the allowance was trebled to £3,000 from 6 April 2027, and the Self Assessment reporting threshold for trading income rises with it. The change is subject to Finance Bill 2026-27, and it does not apply retrospectively: income earned in 2026/27 is still measured against £1,000.

Telling HMRC: registration and deadlines

Registration is a one-off step through your Government Gateway account, after which HMRC issues your Unique Taxpayer Reference. Allow time, because you cannot file without it. Our step-by-step guide to registering for Self Assessment covers the forms and the penalties for missing 5 October.

After that, the calendar repeats each year: paper returns by 31 October, online returns and payment by 31 January, and a second payment on account by 31 July if one applies. Payments on account are not triggered if your last bill was under £1,000 or if at least 80% of your tax was already collected at source, which is often the case when most of your income comes through PAYE. The practical detail is in our guide to paying your Self Assessment tax bill.

Income tax and National Insurance on the profit

Your salary normally uses up the £12,570 Personal Allowance, so side-hustle profit is usually taxed from the first pound at your marginal rate: 20%, 40% or 45% in England, Wales and Northern Ireland. Scotland sets its own bands, so check those if you are a Scottish taxpayer.

National Insurance works differently from the Class 1 already deducted from your wages. Class 4 is charged on self-employment profit alone, at 6% between £12,570 and £50,270 and 2% above. Because the threshold applies to the business profit on its own, most part-time side hustles pay no Class 4 at all, however high the salary. Class 2 has not been compulsory since April 2024; below the Small Profits Threshold of £7,105 you can still pay it voluntarily to protect a State Pension qualifying year.

Selling online: what the platforms report

Since January 2024, marketplaces such as eBay, Etsy, Vinted and Airbnb must send HMRC the details of any seller who makes 30 or more sales or receives about £1,700 (€2,000) on that platform in a calendar year. Reports reach HMRC by 31 January for the previous calendar year.

Being reported is not the same as owing tax. Selling your own possessions is not trading, and the calendar-year reporting threshold has nothing to do with the £1,000 tax threshold measured over the 6 April tax year. What matters is whether you buy, make or source things to sell at a profit.

Making Tax Digital from April 2027

If the side hustle grows, the next milestone is Making Tax Digital for Income Tax. It already applies to sole traders and landlords with qualifying income over £50,000, and from 6 April 2027 the threshold drops to more than £30,000.

Qualifying income is gross self-employment and property income combined, before expenses; employment income, pensions and dividends do not count. The test for April 2027 is the figure on your 2025/26 return, due by 31 January 2027. Being in scope means digital records, quarterly updates through compatible software and a final declaration at year end.

Does your employer have a say?

There is no law stopping an employee from running a business on the side, but your contract may. Look for an exclusivity or outside-interests clause, a conflict-of-interest provision, and the intellectual property clause that decides who owns what you create. Many contracts require you to notify your employer or seek written consent rather than banning side work outright.

One statutory limit applies across all your work: the 48-hour weekly average under the Working Time Regulations covers your combined hours unless you have signed an opt-out.

Keeping records from day one

Whether or not you have to register this year, record every sale and every cost as it happens. Invoices and bank statements are the evidence behind your figures, and they also tell you the moment you cross a threshold. The next one worth knowing is VAT: registration becomes compulsory once taxable turnover passes £90,000 in a rolling 12 months.