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What are the tax implications of side gigs?

9th August 2021

Tax implications of a side gig

As a result of the pandemic, more and more people are looking for new ways to make a living. This includes taking on additional work alongside their full-time jobs. Whether it’s to earn extra money or pursue a passion, side gigs are becoming increasingly popular with workers in the UK. 

While earning extra cash from a side gig feels productive, is it too good to be true tax-wise? What a lot of people don’t know is that side gigs come with some tax implications. If left undeclared, it can result in a nasty unexpected visit from HMRC.

Here’s everything you need to know about side gigs and tax in the UK:

What’s a side gig?

A side gig is a type of job that you can do alongside your normal employment. Side gigs and other forms of freelancing are very popular with UK workers. They’re a great way to make some extra cash outside your main job. Not only that, side gigs are a great way for you to pursue a passion, all whilst still earning a good salary to support yourself.

For example, you might work a full-time job as a receptionist during the week, but in your spare time you make extra money from your Twitch streaming.

What tax implications are there for my side gig?

The main tax implication is that money you make from side gigs is untaxed. In an employed job, your tax is already collected from your salary by PAYE. This means that Income tax and National Insurance are taken off before you receive your payslip. Whereas in any side gig or freelance jobs, you’re responsible for paying tax on any earnings you make. 

Do I need to declare my additional income to HMRC?

Yes! Because your side gig income is untaxed, HMRC need to know about it. Failing to do so can result in hefty fines and added interest on late payments. You could even end up paying more in fines and interest than the original cost of your tax bill!

Everyone in the UK has an £1,000 allowance of additional income outside of their regular employment. So if you’ve made less than that from your side gig, you don’t need to worry about declaring it to HMRC. However, if you’ve made over the £1,000 threshold, you’ll need to inform them and submit a Self Assessment tax return.

You’ll need to keep copies of your invoices, bank statements and receipts from your side gig to show how much you’ve made over the tax year. HMRC will take into account these earnings, along with the salary from your main form of employment, and issue you with the correct tax bill.

What is Self Assessment? 

Self Assessment is a system HMRC uses to collect tax. People and businesses with other forms of income must report it in a tax return, including anyone who has a side gig. If you need to do a Self Assessment tax return, you must file it after the end of the tax year (5th April) it applies to.

Is there anything I don’t need to declare?

As we mentioned already, if you earn less than the £1,000 allowance from your side gig, you don’t need to declare it to HMRC. But remember, even if it’s just a single penny over, you’ll need to let them know.

You don’t need to declare any gambling winnings you earn. This money is not classed as a taxable trade in the eyes of HMRC (this includes matched betting too!). This means you could essentially win a big sum of money from gambling that would be exempt from tax.

If you’re ever in doubt about what you need to declare, get in touch with HMRC. It’s better to know now rather than receiving a surprise tax bill later down the line!

How much will my tax bill be?

The amount of Income tax and National Insurance you’ll pay depends on how much you make from your side gig. It also depends on how much you earn in your employed job. 

You might find that the money from your side gig pushes your overall earnings into a higher tax band, meaning that you’ll pay more tax on those earnings.

Interested in knowing how much you’ll pay? You can quickly calculate how much Income Tax and National Insurance you owe on your earnings by using our calculator below:

Annual gross salary
£
Self-employment income
£
Self-employment expenses
£
Select tax year
Income after tax
£50,222
PAYE
£9,160
SA
£10,619
Taxes already sorted by your employervia Pay As You Earn – PAYE
£9,160

Income Tax

£12,500 taxed at 0%

£27,500 taxed at 20%: £5,500


National Insurance

No Class 1 NI on your first £9,500

Class 1 NI at 12% on your next £30,500: £3,660

Income Tax and NI that you need to payvia Self Assessment tax return – SA
£10,619

Income Tax

£10,000 taxed at 20%: £2,000

£18,000 taxed at 40%: £7,200


National Insurance

Class 2 NI: £159

Class 4 NI at 9% on your next £10,000: £900

Class 4 NI at 2% on your next £18,000: £360

What you’re left with
£50,222

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How your taxes are calculated if you’re both employed and self-employed

As a PAYE your employer will calculate and deduct both Income Tax and National Insurance contributions for you.

Because you’ve earned over £1,000 from self-employment, you need to submit a Self Assessment tax return and pay Income Tax and National Insurance on this income.

PAYE taxes breakdown

These are all deducted from your salary by your employer every month.

You pay no Income Tax on the first £12,500 that you make.

You pay £5,500 (20%) on your salary between £12,500 and £40,000.

You pay no NI contributions on the first £9,500 that you make.

You pay£3,660 (12%) on your salary between £9,500 and £30,500

That’s not all. Your employer is also required to pay separate NI contributions, but these won’t come out of your wages. In your case they would need to pay an extra £4,209 – you should see these on your payslip.

Self-Employment tax breakdown

You will need to submit a Self Assessment tax return and pay these taxes and contributions yourself. The deadline is January 31st of the following year.

You pay £2,000 (20%) on your self-employment income between £0 and £10,000.

You pay £7,200 (40%) on your self-employment income between £10,000 and £28,000.

You will need to pay Class 2 NI worth £159.

You will also have to pay £900 (9%) on £10,000 of your self-employment income.

You will have to pay an additional £360 (2%) on another £18,000 of your self-employment income.

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