Your side hustle and tax: The £1,000 rule and what you need to know now

No, there isn’t a new “side hustle tax,” even though it might sound that way from some of the headlines. There’s no separate tax for side hustlers; HMRC is just stepping up how it applies the current rules. They’re focusing more on people earning extra cash through freelancing, selling online, or other side work.

The rules themselves haven’t changed; it’s the enforcement that has.

Here’s the simple rule: if you earn more than £1,000 in extra income during a tax year, whether that’s from freelancing, selling online, or doing odd jobs,  you might need to register for Self Assessment and pay tax on your profits.

That £1,000 is called the “trading allowance.” It’s a small tax-free cushion meant for occasional or low-level income — like buying clothes and selling online or doing a few paid gigs here and there. But once you go past that threshold, the income becomes taxable.

So, no new tax, just a renewed focus on making sure everyone reports their extra income correctly.

The £1,000 rule doesn’t just apply to freelancers and side gigs; it also covers small amounts of rental income.

If you make up to £1,000 a year from letting out property, you usually don’t need to report it. That’s because it falls under the property allowance, which works much like the trading allowance but for rental income.

If your property income goes over £1,000 in a tax year, you’ll need to let HMRC know and may have to register for Self Assessment.

Here’s when that might apply:

• You rent out your driveway or a parking space for some extra money.
• You list your home on Airbnb once in a while.
• You sublet a room and earn more than £1,000 (not through the Rent-a-Room scheme).

In all these situations, the first £1,000 is tax-free, but anything after that needs to be declared.

Just one thing to note – you can’t claim both the property allowance and expenses for the same income. You’ll need to choose whichever gives you the better result.

Freelancers don’t have tax taken off automatically like employees do, so you’ll need to sort it yourself. You’ll register as self-employed with HMRC and submit a Self Assessment return once a year.

You’ll pay Income Tax and National Insurance contributions based on your profits (income minus expenses). The deadline for both filing and payment is 31 January.

A few simple habits make life easier:

• Use a dedicated bank account for freelance income and spending.
• Update your records regularly — don’t leave it until the end of the year.
• If your tax bill exceeds £1,000, HMRC might ask for a payment on account toward next year’s bill.

DeFi or Decentralised Finance is one of the trickier areas when it comes to tax. It includes things like staking, lending, yield farming, or earning rewards through crypto platforms.

HMRC treats most DeFi activities as taxable, depending on what kind of transaction it is.

Here’s how the £1,000 rule fits in:

• If your total crypto or DeFi income for the year is below £1,000, you’re usually covered by the trading allowance, so reporting isn’t required.
• Once your earnings go beyond £1,000, though, you’ll need to tell HMRC by including them in your Self Assessment return.

Starting with the 2024–2025 tax year, there are new dedicated sections for crypto on the form, so reporting gains and income is much more straightforward.

Keep detailed notes of everything; every purchase, sale, and transaction, including dates and amounts. Clear records make life easier if HMRC ever asks questions later. Crypto exchanges are now sharing data with HMRC, so it’s best to be transparent.

The takeaway? DeFi and crypto income are taxable. The £1,000 allowance only offers limited relief. Anyone earning regularly should consider professional tax advice, especially since crypto rules are evolving fast.

If your side hustle brings in more than £1,000 a year, you’ll need to register for Self Assessment. Once you’re registered, you’ll complete a tax return each year showing your income and expenses from the side business. You’re only taxed on what’s left after costs, your profits, not the total amount you earn.

Here’s what you should do:

• Register with HMRC once your income exceeds the £1,000 allowance.
• Record everything; both your earnings and your business costs, no matter how small.
• Keep records of all money coming in and any costs related to your side hustle.
• File your tax return online by 31 January following the end of the tax year.
• Pay your tax by the same deadline; HMRC makes it easy to pay online.

It’s a good idea to set aside a bit from each payment you receive; around 25% is a safe bet. That way, when your tax bill arrives, it’s not a nasty surprise, and you have the funds available to pay it.

If you make a little extra money on the side, the £1,000 trading allowance helps keep things straightforward. It’s there for people doing casual work, small freelance projects, or selling items for profit.

As long as your total side income is below £1,000, you don’t need to pay tax or report it. Once your earnings cross that line, you’ll have to let HMRC know by registering for Self Assessment.

You can then choose one of two options:

• Use the £1,000 allowance and pay tax only on what’s above it.
• Deduct your actual expenses if they’re higher than £1,000.

Pick whichever option saves you more money.