The road to fame and fortune for many household names started as a side hustle in their spare rooms.
Starting out as a teenage floristry assistant, perfume queen Jo Malone began mixing scented oils and making face creams at home for her skincare customers, before she later sold out to Estée Lauder for millions.
Business magnate Richard Branson flogged cheap records by mail order which eventually became Virgin, and Lord Alan Sugar began a side hustle selling electrical goods, which eventually grew into Amstrad.
Your little side hustle could be the start of something big, so we spoke to some experts who answered common questions around side gig financial admin to help set you up for success…
At what point do I need to declare my side hustle income to HMRC and pay tax?
“If your side hustle is selling on Vinted and doesn’t go above the trading allowance of £1,000 that HMRC allows you to earn tax-free, then you don’t need to notify anyone,” says Abigail Foster, accountant and personal finance expert at Compare The Market.
“However, if you’re turning over more than £1,000 from your side hustle in a 12-month period, that’s April 6 to April 5, that money could be taxable.”
This means registering for Self Assessment with HMRC and declaring the income.
“Everyone is allowed £12,570 of income before tax, but if you are employed, chances are that you’ve used up that. So, people need to be aware that side hustle income sits on top of their income,” says Foster.
Renting out rooms and flats on platforms like Airbnb is a common way to earn extra cash, but you must follow specific government tax rules.
“If you’re renting out of room in your house, and you’re still living there, you get an allowance of £7,500 each tax year. But if you leave and rent out the entire flat on Airbnb, that’s rental income and is separate,” explains the accountant.
Should I set up a separate bank account for my side hustle?
“The very first thing that anyone running a side hustle should do is set up a separate bank account,” advises Foster. “You don’t have to set up as a sole trader to start. If you’re thinking, “Oh, I might only make £500, but I could make £5,000,’ separate out the finances early on because it’s so tricky to go back and clean it up.”
Helena Okunzuwa, influencer and co-founder of a platform called The Shade Borough, agrees and shares that this is what she did when she first started her entrepreneur career at university.
“When I was at university in 2013, I used to flip shapewear on eBay,” says Okunzuwa. “When I started, selling on eBay meant you needed a PayPal account, and money from sales went straight into that business account.”
Digital platforms like eBay, Vinted, Etsy and Airbnb now automatically report seller details to HMRC if sellers cross certain thresholds – such as 30 items or £1,700, according to the government’s website.
How can I keep track of income and expenses?
Every payment and expense needs to be tracked, even if that means typing it in manually on an Excel spreadsheet.
There are plenty of automated tools out there that link up with bank accounts and do all the hard work for you, but check which one is compatible with your accountant.
“I use Xero for expenses and running payroll, and Revolut for my banking,” says Foster. “But there are many other options as well – like QuickBooks and Sage.”
When should I get an accountant?
“If you’re making over £90,000 in a tax year, you need an accountant because at that point you become VAT liable and if you employ someone, it’s worth speaking to an accountant,” advises Foster. “Furthermore, if you are consistently making probably £1k-£2k a month, you should see an accountant.”
Foster says choosing the right accountant is like choosing the right hairdresser.
“If they’re not giving you a good experience, walk away,” she advises.
Okunzuwa agrees and says: “You have to do your due diligence when finding the right accountant. We didn’t get it right. There were so many mistakes on our first filing at Companies House, that our second accountant had to correct them.”
What are some common mistakes to avoid?
“Compare The Market did some research back in July which found that 47% said their spending had increased in line with their income, known as ‘lifestyle creep’,” says Foster. “I think this is very prevalent with side hustles.
“People start one, think that they’re making loads of money and then spend it all, forgetting that it’s not like employment income which is net of tax. Side hustle money is gross, and you need to keep some back to cover your tax liability.”
Foster admits she’s had to learn from one of her own mistakes. “I spent too much too early on investing in things that I really didn’t need – like tech, so try to avoid that,” she recommends.
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