Selling Online or Side Hustling? How to Avoid Unexpected Tax Bills

The rise of online selling, freelancing, and side hustles has given many people an additional source of income.

Whether you’re selling on eBay, Etsy, Vinted, or providing services like tutoring, consulting, or social media management, it’s important to understand how HM Revenue & Customs (HMRC) views your earnings.

Without proper planning, you could face an unexpected tax bill, but by knowing the rules, you can stay compliant and avoid penalties.

Do I need to pay tax on my side hustle?

The good news is that HMRC provides a Trading Allowance, which means you can earn up to £1,000 per tax year from self-employment or casual sales without needing to report it or pay tax.

However, if your income from selling online or side work exceeds £1,000 in a tax year, you may need to:

• Register for Self-Assessment as self-employed
• Keep records of income and expenses
• Submit a tax return and pay tax on your profits

Online selling: Business or hobby?

HMRC differentiates between casual selling and trading as a business. If you occasionally sell second-hand items from your wardrobe or unwanted belongings, you don’t need to pay tax.

However, you may be seen as trading as a business if you:

• Make items to sell for profit
• Buy stock specifically to resell
• Regularly sell similar products or services
• Run a shop-style account on online platforms

If you fit any of these criteria, HMRC may classify you as a sole trader, meaning you could owe Income Tax and National Insurance.

How much tax will I pay?

If your total earnings (from employment and self-employment) exceed the personal allowance of £12,570, your side hustle profits will be taxed as follows:

• Basic rate (20 per cent) – on profits above £12,570
• Higher rate (40 per cent) – on profits above £50,270
• Additional rate (45 per cent) – on profits above £125,140

You may also need to pay Class 2 or Class 4 National Insurance if your profits exceed £12,570 per year.

What if I don’t declare my earnings?

HMRC is increasingly using digital tracking and data from online marketplaces to identify undeclared income. Failing to report taxable earnings could lead to:

• Backdated tax bills
• Late payment fines and penalties
• HMRC investigations into your finances

How to stay tax-compliant

To avoid unexpected tax bills, follow these steps:

• Keep records – Track income and expenses to calculate profits and factor in the money from your other employment, including your PAYE records.
• Set aside money for tax payments – If you owe tax, put aside 20 to 40 per cent of your earnings to cover your bill.
• File your return on time – The deadline for online Self-assessment is 31 January each year.

Need help managing your tax obligations?

If you’re unsure about how much tax you owe or whether your side hustle qualifies as a business, seeking professional tax advice can help you stay compliant and avoid penalties. For guidance and support, please speak to our team.