To earn extra money or pursue a passion, it’s becoming more popular for people to have a “side hustle” to pair with a day job. Recent research by Henley Business School revealed one in four Brits in full-time employment have taken on at least one side hustle. This contributes an estimated £72bn to the economy.
Over the next 10 years, the number of people with a side hustle is expected to rise significantly. Henley forecasts 50% of the UK population will have a side hustle by 2030. And a survey by Hiscox revealed the average person with side hustle works an extra 6 to 15 hours per week, while 1 in 5 work an additional 16 to 20 hours.
The survey also revealed 43% are likely to have a side hustle in a different industry to their full-time job. The majority of side hustlers described their side project as a creative outlet or business service. And technology advancements are making it easier to have a side project in these industries.
Side hustle meaning: A side hustle is considered to be a secondary job or small business that brings in or has the possibility to bring in extra cash. Many use side hustles, from freelance work to handicrafts, not only for financial incentives but also for personal development, fulfilling entrepreneurial goals, and the opportunity to trial working in other industries.
Related: The rise of the student freelancer
Before starting a side hustle, it’s important to weigh up your circumstances, priorities, and passions to ensure your side hustle allows you to pursue your passion while bringing in extra income – instead of turning into a headache.
With a side hustle, you could find yourself working an additional 10 to 20 hours a week. It’s important to consider how much available time you have between your full-time job, extracurriculars, and family commitments. Naturally, side hustlers have to find ways to be extremely efficient with their time.
You have to be committed to a side hustle as it’s hard to come home from a day of work and find the energy to work on your other job. To put in the hours, you have to be passionate about what you’re doing. You’re more likely to be successful with your side hustle if you are fully committed to it.
Some side hustles require capital to start up. That’s why many side hustlers try to build their business while having a steady income from their full-time job. This allows many to not have to worry about using all of their savings and offers more financial security. Find out about the new wave of SME lending.
Many plan to keep their full-time job until they’re able to generate enough revenue to support themselves and after that, salaried employees. A financial forecast or plan can help you decide when you’ve reached that point. It’s also important to set short and long-term goals to keep you going when you’re running low on energy and motivation.
Related: What is EIS? - alternative funding options for small businesses
Research commissioned by Vistaprint revealed those with a side hustle make an extra average of £6,604.80 annually after tax. And 15% even make £12,000 per year. There are a few tax-related matters to go over to ensure you know the tax implications of your side hustle.
Many side hustlers will need to register as self-employed with HMRC. If this is the case, you’ll be required to fill out a self-assessment tax return each year. To do this, you’ll need to keep up with your income and allowable expenses.
Many side hustlers start as freelancers or sole traders, meaning income tax will be calculated on total earnings. You’ll pay tax on the amount over the personal allowance, and for the 2019/20 tax year, the personal allowance is £12,500. If you make below this amount between your day job and side hustle, you won’t have to pay income tax on your earnings.
On your combined earnings, you’ll pay 20% income on your earnings above the personal allowance threshold and below the limit for the basic tax rate, which is £37,500 for the 2019/20 tax year. Then, you’ll pay 40% on any earnings over the basic limit until you reach the higher limit, which is £100,000 for the current tax year.
Note: Eventually, your side hustle might grow to the point where it could be beneficial to change from a freelancer or sole trader to a limited company. At Accounts & Legal, we can help you become incorporated.
Related: Small business tax, finance and legal changes for 2020
If you’re doing self-employed work, you’ll likely need to pay Class 2 National Insurance directly to HMRC. If your profits total to more than £6,365, you’ll have to pay a rate of £3 per week.
If you have self-employed profits between £8,632 and £50,000, you’ll need to also pay Class 4 National Insurance, which is 9% of all profits in that window. If you make more than £50,000, you’ll pay an additional 2% on the amount surpassing that.
Note: The National Insurance you pay on the income from your full-time job won’t change. This is usually Class 1 National Insurance and is paid through PAYE with your employer.
There are two special tax allowances, the trading allowance and property allowance, that open up tax-free opportunities for those with a side hustle. If you earn £1,000 or less of trading or property income in a tax year, you won’t have to pay tax on this income. You actually don’t even need to let HMRC know you’re making this money.
Taxes can be complicated. If you need help navigating the self-assessment process or creating a limited company, contact our team on 0207 043 4000.
Technology advancements have made having a side hustle easier. Websites like Fiverr, an online marketplace for freelance services, help connect freelancers offering digital services with businesses. And Etsy has also made it easier for people to sell handmade gifts or vintage items online. Here are a few examples of common side hustles in the digital age:
Graphics and design
Programming and tech
Buying and selling domain names
Writing and editing
Tutoring and teaching
There are a range of goods or services you can sell as your side hustle. It’s important your passionate about what you do and have the time to devote to it. And maybe one day it’ll even turn into your full-time job!
We can help you file your self-assessment tax return.
If you’d like help with taxes on your side hustle (or any other form of accounting), give us a call on 0207 043 4000 or try our instant accounting quote tool.
Find out more about our self-assessment tax services here.