Earning extra money from freelance work alongside your day job? Once that side income goes over £1,000 in a tax year, HMRC expects to hear about it, and side hustle tax rules are easier to follow than most people think.
Plenty of people now run a side hustle next to their salary. Maybe you design logos at the weekend, tutor in the evenings or take on photography jobs. Your employer already handles tax on your wages through PAYE, but nobody does that for your freelance income. That job is yours. This guide from Asmat & Co walks you through what to pay, when to pay it, and how to keep more of what you earn. Our motto says it all: We do Numbers & You do Business!
Employed, self-employed or both?
You can be both at once: an employee in your main job and self-employed for your side work. Each side is taxed differently, so it helps to know which is which.
As an employee, your employer takes Income Tax and National Insurance off your pay before you see it. As a freelancer, you invoice clients, receive the full amount, and settle the tax yourself through Self Assessment.
Freelancing usually means working for several clients, on a project basis, using your own equipment and choosing how the work gets done. If one client controls your hours and methods like an employer would, HMRC may see you as an employee instead. HMRC’s free Check Employment Status for Tax (CEST) tool can help, and we are happy to look at borderline cases.
Do you need to register with HMRC?
You need to register for Self Assessment once your freelance income (before expenses) goes over £1,000 in a tax year. That first £1,000 is covered by the trading allowance, so very small side earnings stay tax-free and need no return.
The registration deadline is 5 October after the end of the tax year in which you started. For example, if you began freelancing in June 2026, you have until 5 October 2027. Once registered, HMRC sends you a Unique Taxpayer Reference (UTR), which you’ll need for every return.
Need Help With Your Accounts Or Tax?
Whether you need support with self assessment, VAT returns, payroll, bookkeeping, CIS, company accounts or corporation tax, Asmat & Co Accountants can provide clear, practical advice for your business or personal finances.
Making Tax Digital: From April 2026, sole traders with self-employed and property income over £50,000 must keep digital records and send HMRC quarterly updates. The threshold drops to £30,000 in April 2027 and £20,000 in April 2028. Your salary doesn’t count towards these figures, only your business and rental income does.
Income Tax and National Insurance
You pay tax on your freelance profit (income minus allowable expenses), not on everything clients pay you. Your salary and freelance profit are added together to decide which tax band you fall into.
| 2026/27 (England, Wales and NI) | Taxable income | Rate |
|---|---|---|
| Personal Allowance | Up to £12,570 | 0% |
| Basic rate | £12,571 to £50,270 | 20% |
| Higher rate | £50,271 to £125,140 | 40% |
| Additional rate | Over £125,140 | 45% |
Scotland has its own Income Tax bands. The Personal Allowance also shrinks by £1 for every £2 of income over £100,000.
Why side income can feel expensive: Your job’s salary usually uses up your Personal Allowance first. That means your freelance profit is often taxed at 20%, or 40%, from the very first pound.
On top of Income Tax, you pay Class 4 National Insurance on self-employed profits: 6% between £12,570 and £50,270, and 2% above that. These limits apply to your freelance profit on its own. Compulsory Class 2 contributions were scrapped in April 2024, though people on low profits can still pay them voluntarily to protect their State Pension.
What about VAT?
You must register for VAT if your taxable freelance turnover goes over £90,000 in any rolling 12-month period, or you expect it to within the next 30 days. Most side hustles stay well below that.
You can register voluntarily below the threshold. That can make sense if your clients are VAT-registered businesses, because you can then reclaim VAT on your own business purchases. Once registered, you add VAT to your invoices and file returns digitally, usually every quarter. Our VAT return service can take this off your plate.
Key deadlines and payments on account
For the 2025/26 tax year, your online return and your tax bill are both due by 31 January 2027. Miss the filing date, and HMRC charges an automatic £100 penalty, even if you owe nothing, with more penalties and daily interest after that.
| Date | What’s due |
|---|---|
| 5 October | Register for Self Assessment if you started freelancing in the previous tax year |
| 31 October | Paper return deadline (the 2025/26 one has now passed) |
| 30 December | File online by this date to ask for a bill under £3,000 to be collected through your PAYE tax code |
| 31 January | Online return due, plus your balancing payment and first payment on account |
| 31 July | Second payment on account |
Payments on account are advance instalments towards next year’s bill, each worth half of this year’s. They apply when your Self-Assessment bill is over £1,000, unless more than 80% of your total tax was already taken at source. Many side hustlers on PAYE escape them for that reason, so it’s worth checking before you budget.
The £3,000 tax code option is useful if you’re employed: rather than paying a lump sum in January, the tax is collected in small amounts from your salary over the following year.
Allowable expenses: keep more of what you earn
Every allowable expense lowers your profit, and so lowers your tax. An expense qualifies when it is wholly and exclusively for your business.
If you earn £8,000 from freelance work and spend £1,500 running it, you are taxed on £6,500, not £8,000.
Common claims for freelancers include:
- Equipment such as laptops, cameras and tools, usually deductible in full in the year you buy them
- Software, apps and online subscriptions used for the work
- Travel to clients, including mileage at 45p a mile for the first 10,000 business miles
- The business share of your phone and broadband bills
- Working from home, either a flat monthly rate based on hours or a fair share of household bills
- Professional memberships, insurance, training and accountancy fees
Items you use partly for personal reasons can still be claimed for the business portion, as long as you can show how you worked it out. Personal costs, everyday clothing and your normal commute can’t be claimed.
If your expenses are small, you can deduct the £1,000 trading allowance instead of your actual costs. You choose whichever is higher, and we check this for every client as part of our self assessment tax return services.
Sole trader or limited company?
For most side hustles, staying a sole trader is the simplest and cheapest option. A limited company tends to make sense only once profits are steady and substantial.
| Sole trader | Limited company | |
|---|---|---|
| Setting up | Register with HMRC for Self-Assessment | Incorporate at Companies House |
| Tax on profits | Income Tax and Class 4 National Insurance | Corporation Tax at 19% to 25%, then tax on the salary or dividends you take out |
| Liability | You are personally liable for business debts | Your personal assets are generally protected |
| Paperwork | One annual return (plus quarterly updates if Making Tax Digital applies) | Annual accounts, a Corporation Tax return, a confirmation statement and your own Self-Assessment |
Dividend tax rates rose in April 2026, so the savings from incorporating are smaller than they used to be. We’ll run the numbers for your situation before you decide. If you do incorporate, our company accounts preparation services handle the filings for you.
Quick tips for side hustlers
- Open a separate account: Keep freelance money away from your salary account so your records stay clean.
- Put tax aside as you go: Moving 20% to 30% of each payment into a savings pot avoids a January shock.
- Snap every receipt: A photo on your phone today saves a search through emails next year.
- Check your tax code: Make sure HMRC isn’t treating your side income as a second job and over-taxing your salary.
- Don’t leave it to January: Filing early tells you what you owe months before you have to pay it.
Frequently asked questions
Do I pay tax if I earn under £1,000 from freelancing?
No. The trading allowance covers the first £1,000 of gross freelance income, and you don’t need to register or file a return for it.
My employer already deducts tax. Why do I owe more?
PAYE only covers your salary. Tax on your freelance profit is worked out separately through your Self Assessment return.
Can I claim expenses and the trading allowance together?
No, it’s one or the other. Claim whichever gives you the lower tax bill.
Is it worth using an accountant for a small side income?
Often, yes. Missed expenses, wrong tax codes, and late-filing penalties can easily cost more than the fee.
Let Asmat & Co handle the numbers
Whether you freelance at weekends or full-time, our accountancy services UK clients rely on make tax simple. We offer fixed fees with no hidden costs, unlimited phone and email support, and a guaranteed reply within three hours. Our self assessment tax return services cover registration, expenses and filing, and we deal with HMRC on your behalf.
Visit our head office on Slough High Street, our Reading branch or our West Midlands office if you need an accountant in Birmingham. You can also book a video call from wherever you are. Book a meeting with Asmat & Co today. We do Numbers & You do Business!
This article is general information for the 2026/27 tax year and isn’t personal advice. Speak to us about your own circumstances.
Need Help With Your Accounts Or Tax?
Whether you need support with self assessment, VAT returns, payroll, bookkeeping, CIS, company accounts or corporation tax, Asmat & Co Accountants can provide clear, practical advice for your business or personal finances.
