If your hobby or side hustle starts generating income, congratulations! You’ve created yourself another income stream. Making money from your hobby or a small side business also means that you need to start declaring it and pay taxes on it.
In this article, we’ll go over the details of declaring the income from your side business and look into:
- The necessity of keeping records of your side hustle
- When you need to report your income
- How to register for self assessment and report your income
- The amount of tax you’ll need to pay
Let’s look into the details.
Keep records of your side hustle income and expenses
Keep detailed records of the income from your side hustle, so that you have enough clarity and visibility into your income and expenses. Even if you might not need to report it initially (if you’re under the Trading allowance of £1,000 per year), you’ll still need to know how much your business is bringing in, especially if you plan to scale it later.
Keep detailed records of any invoices you issue, as well as of supplies you purchase, and other expenses you incur. Later, this will help you file your self assessment/tax return easily.
When should you start reporting the income from your side business?
First of all, if your side hustle is small scale and you don’t plan to grow it, you should know that you have a Trading allowance of £1,000 per tax year, from which you can deduct expenses. This is for miscellaneous income, money you make from hobbies, streaming, renting your car, or another micro-business.
Once you go over the £1,000 threshold, you need to register for a Self Assessment and Class 2 National Insurance by October 5 of the second year after the creation of your business. In practice, it’s a good idea to do it as soon as possible, if you plan to scale your side hustle beyond £1,000/year.
How can you register for your Self Assessment?
The Self Assessment allows you to declare your income to HMRC and pay taxes on it. Here’s how to do register:
- Visit the HMRC’s website and create a Government Gateway account
- Get your UTR (Unique Taxpayer Reference) by post that you’ll later use to file your tax return
- Get your account activation code (in a separate letter)
- Log in to your Government Gateway account.
You need to file your Self Assessment each year. Based on the info you provided, HMRC will calculate the amount of tax you owe, as well as your insurance, which you’ll then be able to pay online.
How much tax will you have to pay?
Beyond the initial £1,000 of your Trading allowance, you might still not need to pay taxes. There’s a second limit known as a Personal allowance: if your total income (from all your income sources combined, including salaried work) does not exceed £12,570 for 2021/2022, you don’t owe taxes on it.
This amount is often reevaluated (and typically grows with inflation), so remember to check HMRC’s website for up to date info on tax brackets.
Beyond this, you have three tax brackets for your total income in a tax year:
- Basic rate for income from £12,571 to £50,270: 20%
- Higher rate for income from £50,271 to £150,000: 40%
- Additional rate for income over £150,000: 45%.
Remember that these rates apply to all your income combined.
How can Fonoa help?
If you have registered a company or sole proprietorship to withdraw the income earned from Twitch, we can help you to comply with invoicing regulations in your country.
In most cases, to meet your accounting obligations, you need to issue an invoice for every amount of money you receive on your account.
Fonoa got you covered. Our Invoicing product will help you issue fully compliant VAT invoices, so you can focus on scaling your business and income.
Reach out to us, and we will help you automate your invoicing process.