Is Your Side Hustle a Business? Here’s What HMRC Wants to Know

In today’s economy, side hustles are everywhere – whether it’s selling handmade crafts on Etsy, freelancing alongside a full-time job, or renting out a spare room on Airbnb. But as that extra income grows, so do the questions around tax, legal status and whether HMRC sees your hustle as more than just a hobby.

So, when does a side hustle become a business in the eyes of HMRC and what does that mean for you?

What’s the Difference Between a Hobby and a Business?

HMRC doesn’t have a strict checklist, but they look at certain behaviours to determine whether you’re trading. This is where the “badges of trade” come in; a set of criteria that HMRC uses to assess if an activity should be treated as a business for tax purposes.

Here are a few key indicators:

  • Profit motive – Are you trying to make a regular profit?
  • Repetition and frequency – Is it a one-off sale or are you doing it regularly?
  • Organisation – Are you acting in a business-like way (e.g. marketing, using accounting software, buying stock)?
  • Modifications to goods – Are you improving or altering items to sell them at a higher value?

If several of these apply to you, HMRC is likely to consider your side hustle a business and that means you could have tax obligations.

What If I Only Earn a Small Amount?

If your total self-employed income is under £1,000 in a tax year, you may not need to report it at all. This is thanks to the Trading Allowance – a tax-free allowance that covers small-scale activity.

However, once you go over that £1,000 threshold, you must register as self-employed with HMRC and submit a Self Assessment tax return. And don’t forget you’ll need to do this by 5 October following the end of the tax year in which you first earned over the threshold.

Registering as Self-Employed: What to Do

If your side hustle qualifies as a business, here are the steps to stay compliant:

  1. Register with HMRC as self-employed.
  2. Keep proper records of income and expenses.
  3. Track important dates – including the Self Assessment deadline (31 January).
  4. Set aside money for your tax bill, including Class 2 and Class 4 National Insurance if applicable.

What If I Have a Full-Time Job Too?

You still need to report any extra income from your side hustle, even if you’re already paying tax through PAYE. Your self-employed income is taxed separately, and HMRC will calculate how much extra you owe (if any) once your return is submitted.

Depending on your overall earnings, you may also need to make Payments on Account, which are advance payments towards next year’s tax bill.

Need Help Navigating It All?

It’s easy for side hustles to blur the lines. What starts as a hobby can quickly turn into a real revenue stream. If you’re unsure where you stand or how to register, we can help you understand your position and stay compliant, without the jargon.

Get in touch with Stonehouse Accountants today for clear, friendly advice tailored to your situation.