Is Your Side Hustle Now a Business? When You Need to Register for Tax
Whether it’s selling on Vinted or eBay, freelancing in the evenings, tutoring on weekends, or renting out a spare room on Airbnb — more people than ever are making extra income outside their main job.
But at what point does a side hustle become a taxable business?
And when do you need to register with HMRC, file a tax return, or start paying tax?
With income thresholds frozen again in 2025/26 and HMRC increasing its focus on undeclared online income, now is the time to get clear on the rules — especially before the new Making Tax Digital for Income Tax system arrives in April 2026.
This guide explains when your side hustle becomes a taxable business, the thresholds and deadlines that apply, and what you should do now to stay on the right side of HMRC.
Why side hustle income is under the spotlight in 2025/26
Until recently, many people assumed that selling a few things online, doing a bit of freelance work, or renting out a room here and there didn’t count as taxable income — especially if it was “just pocket money.”
But that’s no longer the case.
In 2025, HMRC has:
- Signed data-sharing agreements with platforms like eBay, Vinted, Airbnb, and Etsy
- Expanded its digital matching tools to catch undeclared income
- Continued to freeze income tax thresholds, dragging more people into self-assessment
- Confirmed that Making Tax Digital (MTD) will apply to anyone earning over £50,000 from April 2026
If you’ve earned money from a side activity this year, and haven’t checked whether it’s taxable, now is the time to review it.
Step 1: What kind of income are we talking about?
You may need to declare income from:
- Selling goods online (e.g. clothing, furniture, craft, reselling)
- Freelance or consultancy work
- Tutoring, coaching, childcare
- Beauty services, dog walking, photography, etc.
- Renting out a property or room (e.g. Airbnb, lodger)
- Social media income (sponsorships, affiliate deals, monetisation)
- Digital products or e-commerce
If you’re doing any of the above with the intention of making a profit, even occasionally, HMRC may class it as trading — and that means it’s taxable.
Step 2: The £1,000 trading allowance
The trading allowance gives individuals up to £1,000 of tax-free income each year from:
- Trading or miscellaneous income (e.g. buying and selling, services, online work), and
- Property income (e.g. renting out space in your home)
If your total gross income from any one source is £1,000 or less, you don’t need to register or pay tax — unless HMRC has specifically asked you to file a return.
However:
- If your income exceeds £1,000, even by £1, you may need to register for self-assessment
- The £1,000 is before expenses — not net profit
- You cannot use the allowance if you’re already registered as self-employed for that income stream
Step 3: When HMRC considers it a business
There’s no single definition, but HMRC looks at the “badges of trade” — signs that your activity is a business, not a hobby or one-off:
- Are you regularly selling goods or services with the aim of making a profit?
- Do you advertise or market your offering (e.g. via social media, marketplace sites)?
- Do you buy stock or incur costs to support the activity?
- Do you keep records, price consistently, or have repeat customers?
- Are your actions organised and commercial?
If the answer is “yes” to several of these, it’s likely HMRC would treat your side hustle as self-employment — meaning you must register and declare the income.
Step 4: When do I need to register for tax?
If your side hustle generates more than £1,000 in gross income in a tax year, and it’s considered a trade or business, you must register for self-assessment.
For the 2025/26 tax year (ending 5 April 2026):
- The registration deadline is 5 October 2026
- Your online self-assessment tax return is due by 31 January 2027
- Any tax owed is payable on 31 January 2027, with a potential payment on account for 2026/27
The earlier you register, the more time you’ll have to prepare, track your records, and avoid a surprise tax bill.
Step 5: What tax do I pay on side income?
Once you’re registered, your side hustle income will be taxed in addition to your main income.
That means:
- It’s added to your salary (if you have one)
- You’ll pay income tax at 20%, 40%, or 45% depending on your total income
- You’ll also pay Class 2 and Class 4 National Insurance if profits exceed thresholds (still £6,725 and £12,570 respectively in 2025/26)
This is why many people are surprised by how much tax is due — the side income pushes them into a higher band.
We can calculate your likely tax ahead of the deadline and explore ways to offset expenses, make pension contributions, or reduce payments on account.
Step 6: Should I set up a limited company?
Many people ask if they should start a company for their side hustle. The short answer: not until you need to.
If your side income is:
- Relatively small
- Not employing others
- Not involving major liability risks
- Not trading under a brand name
… then sole trader status is simpler and more tax-efficient in the early stages.
Incorporating too early can create unnecessary admin, Corporation Tax filings, payroll obligations, and accounting costs. That said, once profits rise above £35,000–£50,000, the maths can shift — and we’ll guide you when the time comes.
Step 7: What records do I need to keep?
If you’re self-employed or earning side income, you must keep:
- Invoices or sales records
- Bank statements or payment platform summaries
- Receipts for expenses (if not using the £1,000 allowance)
- Mileage logs (if claiming for business travel)
- Any marketplace reports (Airbnb, Etsy, eBay, etc.)
Digital bookkeeping is highly recommended — especially with Making Tax Digital for ITSA coming in April 2026 for those earning over £50,000.
Merranti can help you get set up on systems like Xero or QuickBooks, even for side income.
Final thoughts
With income tax thresholds frozen and HMRC’s digital tools now pulling data from online platforms, there’s no room left for uncertainty: if you’re making money on the side, it could be taxable — and the responsibility is yours to declare it.
Whether it’s a weekend sideline, a creative project, or a fast-growing venture, once your income exceeds £1,000 per year, it’s time to take it seriously.
At Merranti, we help clients across all sectors register with HMRC, track income, claim valid expenses, and avoid nasty surprises — all while keeping your business lean and compliant.
Wondering if your side hustle should be declared?
Book a Self-Employment Review with Merranti and get clarity on your next move — before the deadline finds you first.
