Are you lying awake at night worried the tax-man is lurking around the corner because you should have registered your side hustle as a business? Well, worry no more!
In this guide, I’ll show you the rules you need to know about business registration, what it means for your taxes, tax code and what you need to do next.
- 1. When Do You Need to Register a Business?
- 2. How to Register a Business with HMRC
- 3. What Happens Once You Are Registered as a Business
- 4. What Tax Do You Pay On Your Side Hustle?
1. When Do You Need to Register a Business?
You need to register as a business when the income from your side hustle goes over £1,000. Below £1,000 you can choose to take advantage of the trading income allowance, where UK individuals can earn up to this amount without letting HMRC know. It’s important to note that £1,000 relates to income, not profit and that it isn’t always tax-efficient to use. So you should check whether using the trading allowance is right for you or if you should register with HMRC regardless of your turnover.
2. How to Register a Business with HMRC
Once your side hustle crosses the £1,000 income threshold, it’s time to register your business with HMRC. This means registering as self employed, which you can do online yourself by filling in the form on the HMRC website. I’ve put together a guide to registering as self employed where I show you the form you need to use and the 5 steps you need to take to complete your HMRC registration.
There are other business structures available, such as a Limited Company. And you may need to consider these depending on your intentions with your side hustle and whether you have business partners. If you do decide you want to form a Limited Company then you’ll need to do that straight away. Ideally, this should have been done before you started working on your side hustle because you’ll need to send out invoices and open a business bank account in the name of your LTD which you can only do legally once it is registered.
If you are registering your side hustle as a business, then read my full guide to Setting Up a Business, where I share more of my knowledge on topics such as business registration, business structures and invoicing to help you get set up correctly.
3. What Happens Once You Are Registered as a Business
Once you are registered as self-employed, you’ll need to start letting HMRC know about your side hustle’s income and expenses. You’ll need to do this once a year by filling in a tax return. The deadline for filling in your return is 31 January each year, and you’ll also need to pay tax by 31 January and 31 July every year too. This process of reporting and paying tax is what is known as self assessment.
4. What Tax Do You Pay On Your Side Hustle?
When you have registered your side hustle with HMRC you’ll need to pay the following self-employment taxes on your business profits:
- Income tax
- Class 2 national insurance
- Class 4 national insurance
The amount of each of these depends on how much profit your business makes and the income tax allowances you are entitled to. You can find out more about self-employment tax and see examples of how each is worked out in this guide.
If you are employed, then the amount of income tax you pay will be based on your combined income from your side hustle and employed job. I’ve written a separate guide about tax when you’re employed and self-employed, where I go into more detail about how tax works and what you need to look out for when you have two forms of income.