Profiting off a hobby or a side hustle can be a great way to earn some extra cash. But, do you have to pay tax on hobbies? And what are the hobby tax rules?
We’ve got a guide on all you need to know below. Take a look.
What’s the difference between a hobby and a business?
A hobby is something that’s done outside of your regular work. It’s usually performed on a part-time basis and mostly alone. This differs to a small business which focuses on profit, could have employees and is usually done full-time.
These two can overlap, however, when what you earn on your hobby passes the hobby income threshold. After this point, you might have earned enough to pay tax on your profits. We have more on this below.
What is the hobby income threshold?
The hobby income threshold or trading allowance is £1000 after any deductions. This is a tax-free allowance for any hobby you do on the side. So, if you earn over £1000 in profit in a single tax year for your hobby, you might need to pay tax to HMRC.
What happens if I exceed the hobby income tax threshold? And, what is the hobby tax income rate?
If you earn over £1000 in profit on your hobby income, you might have to pay tax. But the hobby tax income rate does depend on if you have another job and, if so, how much you earn.
If the £1000+ profit from your hobby income plus your salary stays within the tax band, your tax rate might not change. Our table below shows the 2023/2024 UK tax bands:
| Tax Band | Taxable income | Tax rate |
| Personal Allowance | Up to £12,570 | 0% |
| Basic rate | £12,571 to £50,270 | 20% |
| Higher rate | £50,271 to £125,140 | 40% |
| Additional rate | Over £125,140 | 45% |
How much hobby income can you earn online before paying tax UK?
Many of us who have hobbies sell our goods and services online, either on marketplaces or even social media. But, is there a difference in the trading allowance threshold for earning hobby income online? The answer is no, the threshold for online hobby income is still £1000 after deductions.
How do I pay, log and check how much I owe HMRC for hobby income?
You’ll need to register as a ‘Sole Trader’ on the Government website if you earned £1000 after expenses within the tax year. With the new Making Tax Digital scheme, you will need to file all income and expenditures in order to declare what you owe to HMRC on the online portal. Off the back of this, HMRC will calculate and tell you what you owe.
We have a guide on small business bookkeeping to help you with this – check it out!
Your side hustle may become a small business which means you’ll need to know how this affects your taxes, expenses, and more. See our guide on the different UK tax codes you need to know. And, for further help, make sure to contact Accountancy Solutions for all your small business accounting needs.