Do I have to pay tax on my side hustle?
Image source: Getty Images  Side hustles can be a great way to earn some extra cash for lifes luxuries or to put towards savings or an emergency fund. If you have been asking yourself this question, this article is for you. We tell you whether and how earnings from your side hustle might be taxed. Plot your path towards financial freedom with our Heros Journey tool! MyWalletHero is here to help you learn about taking control of your money, whether thats paying off debt, working towards a short-term money goal, or investing for your future. This tool can help you understand the next steps on your journey  simply choose a goal that best describes your current interests to get started. A side hustle, in the simplest terms, is any job that allows you to earn money in addition to your primary job. Other common names for a side hustle are side job, side gig or second job. Although the concept of the side hustle has been around for some time, side hustles have become increasingly popular in recent times. A study conducted in 2018 found that one in four UK adults (25%) had a side hustle, while 40% of those who did not were interested in starting one. The Covid-19 pandemic has increased the need for multiple sources of income, and increased the appeal of the side hustle. A side hustle can make a world of difference in the midst of a crisis such as your wages being cut, being on furlough or losing your primary job. Some of the most popular side hustles today include:  Driving for a rideshare service (e.g. Uber)  Selling items (e.g. Income tax rules in the UK can be complicated, but the gist is that you have to pay tax on any money you earn that exceeds the standard tax-free allowance of 12,570. This allowance covers earnings from your primary job and any side hustles you have. The good news is that the money you earn from your side hustle could be subject to a tax relief called the trading allowance. The trading allowance lets you earn 1,000 of trading income (gross, before expenses) each financial tax year without having to pay tax. As long as its below 1,000, you do not even have to inform HMRC that youre making this money. This trading allowance absolutely involves anything that generates additional income, from blogging, to pet sitting, to selling crafts on eBay and so on. There is also a 1,000 allowance for property income for those who let out rooms of homes. If you plan to use the trading allowance, you are still required to keep a record of your income. Some of the records you may need to keep include:  Copies of your invoices (paper or electronic)  A spreadsheet of your income receipts  Emails confirming income received  Bank statements  Bank deposit pay-in records  A diary or appointments book showing your income from each customer  HMRC might charge you a penalty if your records are not accurate, complete or readable and if you fail to retain them for the required time period. Its worth noting that this tax allowance does not apply to trading income from a partnership. More information on the trading allowance and the eligibility criteria is available on the gov.uk website. If the gross income from your side hustle exceeds 1,000, you must inform HMRC via a self-assessment tax return. The good news is that you still have more choices from here to save on tax. You can either:  deduct the 1,000 allowance from your gross income and then pay tax on the remaining amount or;  deduct allowable expenses from your gross income, like businesses typically do, and pay tax on the income or profits that are left. The option you select is entirely up to you, but you can only use one at a time. It might be a good idea to sit down first and do the maths to determine which of the two will be the most tax-efficient. Yes No  4 iron-clad rules for saving money on everything Our Editor Sam Robson has been on a personal cost-cutting mission for years  and its time to share his wisdom. Check out his choicest saving tips and tricks in this free report, Sams 4 Iron-Clad Rules For Saving Money On Everything. Just enter your email below for instant access to your free copy. Click here! About the author Sean LaPointe Sean is a personal finance writer with a strong passion for helping others become more financially literate and make better financial decisions. He covers everything from credit cards to savings to investing.