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Having a side hustle is beginning to seem vital in today’s world, especially for younger generations. With prices going up, many people are adding part-time jobs to make ends meet. Its
estimated 44% Brits have a side gig to boost their main earnings. No matter if it’s passive income or freelancing, keeping your side hustle finances in check is key to doing well.

If your side hustle brings in more than £1,000 a year, register as a sole trader with HMRC. This rule still stands even if you have a steady job. Juggling both jobs takes careful planning and working efficiently. Using financial tools can help you understand your money flow better, making smart decisions easier.

Setting up a business bank account and picking good accounting software is crucial. It’s also important to track all your money closely. If your earnings top £85,000 annually, you’ll have to deal with VAT. By managing your money well and choosing the right support, your side hustle can grow into a successful business. This way, you can reach the financial goals you set for yourself.

Key Takeaways:

  • Register as a sole trader with HMRC if your side hustle earns more than £1,000 in a tax year.
  • Open a separate business bank account to keep personal and business finances separate.
  • Choose accounting software like QuickBooks, Xero, or Wave to streamline financial management.
  • Keep accurate records of income and expenses for tax purposes and claiming eligible business expenses.
  • Set aside money for taxes throughout the year to avoid a large tax bill at the end of the year.
  • Register for VAT if your side hustle earns £90,000 or more in a year.
  • Invest in financial management tools and software analytics to gain insights into your side hustle’s financial health.

Setting Up Your Side Hustle Finances

When you start earning from your side hustle, it’s key to handle your money well. A recent survey found 76% of Gen Z in the UK have a side job, making around £223 a week. If your side job earns over £1,000 in a tax year, tell HMRC about it!

Registering as a Sole Trader with HMRC

Make sure your side hustle is legal by signing up as a sole trader with HMRC. Use the Self Assessment system to declare your income and pay any taxes. Even if your main job already pays taxes, you must still register for your side job. Remember to sign up for Self Assessment by 5 October of your business’s second tax year.

Opening a Separate Business Bank Account

Open a business bank account to keep your finances in order. This keeps personal and business money apart, which is good for tracking your cash. Look for an account with low fees, good online banking, and software compatibility.

Choosing the Right Accounting Software

Good accounting software can make your life easier. Services like QuickBooks, Xero, Wave, and Zoho Books are great for small businesses. They help with invoices, tracking expenses, and more. With the right software, managing your money is simpler. Xero offers full accounting features and Wave has a free service, while Zoho Books includes project and inventory management.

Setting a strong financial base for your side hustle is crucial. It helps with managing money, costs, and taxes better. This can boost your earnings and lead to success in your business over time.

Tracking Income and Expenses

Good money management is key. Use the right tools to stay on top of your cash, claim more tax back, and grow your hustle.

Invoicing and Receiving Payments

Sending out invoices and getting paid is important for your finances. With tools like QuickBooks or Wave, you can make invoices easily. They also let you set up reminders for payments and take money online through PayPal. This means fast and safe transactions for your clients and you.

Keeping Accurate Records of Expenses

It’s vital to track what you spend for money management and tax reasons. Use software to sort out your expenses and see what you can deduct. Receipt tracking apps like Dext keep you organised by storing your digital receipts8.

If your side hustle involves a lot of travel, don’t forget to track it. Apps like MileIQ record your miles for tax deductions. Remember, HMRC starts pays 45 pence per mile, so keeping accurate records is important for getting your money back.

Claiming Eligible Business Expenses

Taking off business costs can cut your tax bill as a side hustler. Things like working from home, buying supplies, or hiring a professional can all be claimed. Just keep good records all year to ease the tax claim process.

To keep everything in order, think about using management tools. Asana or Trello can help with keeping track of money and projects. Setting and checking financial goals also ensures your side hustle’s success in the long run.

Managing Taxes for Your Side Hustle

Understanding taxes for your side hustle is key. In the UK, many work a side job. But, if you earn less than £1,000 in a tax year, it’s tax-free. You also get a £1,000 tax-free allowance outside your main job.

Simply, you don’t need to tell HMRC about the first £1,000 made.

Understanding Self Assessment Tax Returns

If your extra money tops £1,000 a year, you must register as self-employed. Do this with HMRC before the 5th of October following that tax year. Self Assessment helps work out your tax due on side hustle earnings. Ensure you file your taxes correctly and on time to steer clear of HMRC’s fines and interest.

Setting Aside Money for Taxes

Roughly 20% of what you make from your side gig is needed to cover taxes. It’s smart to save part of what you earn for tax and National Insurance. By saving regularly for taxes, you won’t face a huge bill at year’s end. Don’t forget, you can earn up to £12,570 tax-free in the UK, if you’re over 18.

Navigating VAT Registration and Returns

Earning £85,000 or more annually from your side hustle means you must register for VAT. After registering, VAT must be added to your prices. Also, you need to send VAT returns to HMRC. Being on top of your VAT duties is vital to dodge penalties. As of April 2026, the digital tax era for the self-employed starts. It’s time to get ready for this move to digital record-keeping and submitting taxes.

By knowing how tax works for your side hustle, saving for taxes, and following VAT rules, you can run your business well. This will help ensure your business thrives in the future.

Beware of Overhyped Training Programs

Be wary of people selling excessive “how-to” courses or hyped-up coaching programs for side hustles that make unrealistic promises. While some paid training can be valuable, do thorough research before purchasing any programs. The fundamentals of a successful side hustle come down to a good business idea that fits your skills and interests, along with sustained hard work over time – not quick gimmicks or shortcuts sold through aggressive marketing tactics.



When do I need to register as a sole trader for my side hustle?

If your side hustle earns over £1,000 a year, you must register. You’ll also need to use the Self Assessment system for tax, even if you work full time.

This is the rule with HMRC for all freelance or self-employed activities earning more than this amount.

Is it necessary to open a separate business bank account for my side hustle?

It is strongly advised to have a separate business bank account. This keeps personal and business money apart.

Doing this makes managing your finances much easier for tax and accounting purposes.

What accounting software should I use to manage my side hustle finances?

Consider using software like QuickBooks, Xero, Wave, or Zoho Books. These are great for organising sales, expenses, and tax information.

They help keep your side hustle financial tasks in good order without much hassle.

How can I track my side hustle income and expenses effectively?

Accounting tools are very helpful for managing money. Also, create a Stripe or PayPal account to handle payments securely.

Remember, saving receipts and records is vital. You can use them to reduce the tax you pay.

When do I need to submit my Self Assessment tax return for my side hustle?

Sign up for Self Assessment as soon as you can. By the 5th of October in your second tax year for sure.

Then, make sure your tax return is in by 31 January every year.

How much should I set aside for taxes from my side hustle income?

It’s smart to save for taxes every month. Aim to put away around 25-30% of your earnings. This should help cover your tax bill.

When do I need to register for VAT for my side hustle?

If your income from your side hustle is £85,000 or more in a year, register for VAT. You will then need to charge VAT on your goods or services.

And remember to file VAT Returns with HMRC.

As the owner and founder of the business, I am responsible for overseeing a range of key activities. These include managing client relationships, spearheading new business development, and crafting the company's development and strategic plans.

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