Setting up a side hustle? Read this first to avoid getting caught out

With more than a third of UK workers having already picked up a second job, or saying they are looking for one to secure additional income, it seems the cost of living crisis is embedding ‘hustle culture’ into the fabric of our society. 

A side hustle can supplement your income, help to pay off debt, or help to turn your hobby into a money making enterprise. 

But there can be pitfalls to starting up a side job, and campaigners continue to ask why, for many, one job isn’t enough to live on?

If you’re thinking of starting a side hustle, here’s the essentials you need to know before kicking it off. 

What is a side hustle?

A side hustle or side job is a way of earning money on the side of a main job. This could be anything from a second or even third salaried or pay per hour job, to working via an app in the gig economy, to freelance work ‘on the side,’ to participating in projects that bring in some extra income. 

Buying and selling items online, trading cryptocurrencies or joining focus groups to raise extra cash have all boomed in popularity since the start of the pandemic.

Unsurprisingly, roles that can be performed from home have become increasingly popular, as side hustlers swap cleaning and painting/decorating for social media influencing and virtual private tutoring to raise funds.

Self-employed or worker? Know what you’re entitled to

Some people have joined the gig economy as Uber/ private hire drivers, food delivery drivers or cleaners to make some extra money before or after their main job.

Gig economy workers have traditionally been classified as self-employed for employment law purposes, meaning they are ‘their own boss’ and do not receive benefits such as holiday or sick pay. 

But in February 2021 the Supreme Court ruled that Uber drivers are workers and not self-employed, ending a four-year dispute which could have wide-ranging implications for the rights of people across the gig economy.

They are now entitled to holiday pay, a guaranteed minimum wage and other basic workers’ rights. They must also be paid for the time they spend on the app.

“As a worker, you have certain legal protections and benefits, such as the right to paid holiday and the right to receive the National Minimum Wage,” wrote The United Private Hire Drivers (UPHD) branch of the Independent Workers Union (IWGB) on Twitter.

Deliveroo drivers, on the other hand, are classed as self-employed, meaning they are not afforded the same rights. 

So if you’re thinking of setting up a side hustle as a driver via an app, make sure you get what you’re entitled to.

If your employment status is unclear, check to see which of the three types of status you fit into. You can also contact the Acas helpline to get help figuring out your situation and how the law relates to it. 

Registering as self-employed

New research suggests that more than a quarter of those with a second source of income are accidentally dodging tax, according to Online Money Adviser. This means that if you’re making extra money but failing to declare it to HMRC for tax purposes, you could be committing fraud.

Under the government’s Trading Allowance, you can earn up to £1,000 from your side hustle without needing to register with HMRC to declare it. You can simply pocket the cash. 

However if you earn above £1,000, you need to let HMRC know you are earning money as a self-employed person within three months or you could face a £100 fine. 

There are different ways of structuring your own business. You could be a sole trader, a limited company or a partnership. There’s information on the pros and cons of each option at gov.uk. 

If your side hustle takes off, you may want to transition into being self-employed full time. 

How to pay tax on a second job side hustle

If your side hustle comes from another form of employment, such as working in a restaurant, HM revenue and customs will be informed and you should receive a payslip like any other employment. You will get a different tax code on your second job. 

The tax code on your main job, assuming it pays you more than the Personal Allowance, should be 1257L for the 2022/23 tax year, according to MoneyHelper. Depending on the rate it is taxed, your second job should have a BR, D0 or D1 tax code.

Career tips and advice from our Jobs and Training series:

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• How to change your career – A step-by-step guide
• How to retrain in 10 crucial areas desperate to hire
• How to retrain for a new job when you’re over 50
• How to reduce job hunting stress
• Employee rights in the UK: Everything you need to know
• Job interview questions: What to ask and how to answer
• How to write a CV that will get you a job
• CV templates: Free downloads for job application success
• Redundancy rights: Everything you need to know
• What to do if you’ve been made redundant
• How to get mental health support at work
• What is flexible working and how can you ask for it? 
• Apprenticeships: Everything you need to know
• Apprenticeships: How to get a job once your placement ends
• How to use online learning to boost your employability
• How to go self-employed: from registering to flourishing
• Setting up a side hustle? Here’s what you need to know
• How to write that resignation letter and move on with your career
• How to get a job with a criminal record
• You could be entitled to free money – use a benefits calculator to find out
• Here’s where to find career advice whatever your situation