As the cost-of-living crisis deepens, students continue with side hustles. It’s never been easier to become an indie creator, a blogger or vlogger, indie musician, or show your art to the world. There is no doubt many questions that have gone through your head about whether you need to pay income tax, when, how, and how much.

According to survey data from before the COVID pandemic, around a quarter of adults have a side hustle – that is a secondary (smaller) income which they offer on freelance, contract, or passive/semi-passive income. That figure could now be much higher, with tech savvy students using them to top up their income.

Do you need to set up a limited company?

No, you don’t. You can, but there are drawbacks – not least of all regular tax reporting and corporate taxes to pay. For a small income (as most side hustles are) it’s not worth the hassle. Students running a side hustle should really become a sole trader and take advantage of the cash basis for their side income. Here, you simply report your side hustle income against your expenses purely for the side hustle.

But this is getting a step ahead of ourselves

You may need to pay tax on your side hustle income

You’d think it automatic that you’d pay income tax, right? Well, yes. But there is more going on here. But to encourage people to sell possessions they don’t need, and develop side hustles as income top ups, there is an upper limit.

In short, if you earn less than £1,000 – even from what might otherwise be considered paid work – you do not have to register or pay for tax. This is even if you also work a part-time job. However, there are two exceptions:

•          If your total income from this side hustle is less than £1,000 then you do not need to register as self-employed or pay tax
•          If your combined income (from a part time or sporadic work) comes to less than the current tax personal allowance, you may need to register and report it though you won’t be eligible for tax

One final caveat and the second point: the threshold for paying National Insurance is much lower.

When to register for and submit tax reporting?

The UK tax year runs from 6^th April in one year to 5^th April in the next. You need to register in the October after the end of the tax year in which you began trading. For example, if your hustle started in January 2022, you need to register by 5^th October 2022.

Then you need to file and pay whatever you owe (if anything) by 31^st January.

If you ever stop your side hustle, it’s necessary to deregister. Don’t simply ignore tax returns for which you made no side income.