Running a side hustle, whether it’s selling products on eBay or renting out your home via Airbnb, can be a great way of ensuring extra income, but users need to ensure they pay their taxes with the introduction of stricter new rules from 2024..
1. Register for Self-Assessment:
2. Declare any Previously Earned Income:
If you’ve earned money in the past from your side hustle and failed to declare it, now is the time to do so. This will avoid you having to pay potentially larger penalties if HMRC discovers the undeclared income as part of an investigation. You may wish to seek help from an accountant or financial advisor if you find yourself in this position.
3. Separate Business and Personal Finances:
Open a separate bank account for your side-hustle. This will help you track income and expenses more accurately and also save time when filing your tax return.
4. Budget and Track Expenses:
Create a budget for both your personal and side-hustle expenses. Keep track of any expenses which relate to your side hustle, including supplies, equipment, marketing costs and any other costs associated with running the business as these are tax deductible.
5. Understand Tax Implications:
Be aware of the tax implications that come with running a side business. In the UK, if you earn more than £1,000 a year, whether it be from dog walking or selling kitsch crafts, then you have a requirement to report your income to HMRC.
The standard Personal Allowance is £12,570, which is the amount of income that you don’t have to pay tax on. If earnings from your side hustle push your total annual earnings beyond this threshold, then it may be worth consulting with a tax professional.
6. Set Financial Goals:
Determine what you want to achieve with your side hustle. Are you looking for some extra spending money, or hoping to eventually replace your full-time income? Knowing your goals will help guide your financial decisions.
7. Emergency Fund and Savings:
It is always a good idea to have an emergency fund in place to cover any unexpected personal expenses. This ensures that you’re not relying solely on funds from your side hustle to cover critical needs.
8. Pricing and Profit Margins:
Make sure that you’re aware of the true cost of your product or service, including materials, labour and overheads. Don’t under-price yourself, make sure that you’re covering all expenses and turning a profit.
9. Stay Organised:
Keep thorough records of all your financial transactions. This includes invoices, receipts, contracts and any other related information.
10. Remember Every Side Hustle and Financial Situation is Unique:
It’s therefore a good idea to consult with a financial advisor or accountant, who can provide tailored advice based on your own set of specific circumstances.