To resent paying so much tax on side hustle earnings?

[Powfred]

I earn around 50k in my main job and pay all the relevant taxes through paye etc.

A few years ago I had a decent disposable income but with childcare, mortgage rises fuel etc it has gone down a lot. I do have a DP who shares these costs but they earn less and have also felt squeezed financially.

At the start of the year I began a side hustle as a hobby to generate some extra income. I figured if it did well I'd have some extra money for treats and days out etc. Not going to give details of side hustle in case outing.

Side hustle is gaining momentum and could potentially generate a few hundred a month soon. However, I've read that once you earn more than £1,000 per year from a hobby/ side hustle, you then have to declare and register earnings for tax. Given my main job salary, this would mean anything I earn from side hustle would be in a high tax bracket.

So (if I've understood correctly - happy to be corrected if not), if it does well then I'll have to pay 40% of what I earn from it in tax.

AIBU to resent this? I've tried to be entrepreneurial to generate more cash when main jobs aren't giving us as much disposable income as before but it just seems pointless if half of the income just goes to taxman.

Boris Johnson has had "side hustles" in addition to his main employment as an MP. He earns hundreds of thousands from these. Should people like him not pay tax on that income?

I've made it clear I'm talking small time max 5k side hustles for lower/ middle earners here so don't be ridiculous

It's incredible some of the sneering and goading reactions you get for daring to question the tax system. God forbid we should ever rethink it or innovate to try and adapt for evolving economy/ cost of living/ more people doing things on the side etc. Not suggesting I'm special or should get things rewritten for my specific needs but this issue has just highlighted to me that tax is not all as black and white as some of you think it is.

Thank you to those who've been more helpful and given advice. I'll look into an accountant maybe if things progress.

Hahahahahaa…. You mean YOU shouldn’t have to pay then?

But everyone else should.

Hilarious 😂

Thing is, imagine if everyone in the “low-middle income” bracket did that:

statistically low to middle = 50% of the working population

working population is around 32m, so that’s 16m people

paying for arguments sake 20% on £5k a year for their side hustle, that’s £1k

Totals £16bn a year

Remind me again why you shouldn’t have to pay it?

Noting wrong with questioning the tax system- there are lots of ways it can be improved. But saying "I don't want to pay tax on money I earn" is not a credible starting point.

Also, please don’t pretend to yourself that your are in some way being daring to question the tax system.

I’m sure Bernie Eccleston considered himself daring but look how that ended up.

My DH paid tax at 45% during his working lifetime, he paid into a pension to save for his retirement, he pays 20% tax on that now.

Do I think it’s fair, no I bloody well don’t but it is what it is. I don’t pay tax as my pension is below the tax threshold so I transferred some of my tax free allowance to him to reduce his tax burden. That only works if the lower earner doesn’t earn enough to pay tax.

I would get yourself an accountant OP even if you aren't making a lot on the other business. The expense of an accountant is a tax deductible anyway, so comes out of your gross profit, and personally I find my accountant to be worth every penny. As well as taking the stress out of tax returns, they do highlight expenses that I wouldn't have even considered or thought of, such as a lot of my home based expenses that can be attributed to the daily running of the business.

This is completely wrong!!! I cannot believe you’ve just said that.

He has MADE MONEY from the tax system!!

Pension contributions are made BEFORE tax, on UNTAXED income, so they’re free to tax or NI, from gross salary. They go in at your marginal rate, meaning that he got tax relief at 45%. The Uk pension system is EET… contributions are exempt, growth is exempt, income is taxed at the end.

He now pays 20% on pension income.. which means that he has saved 25% more (plus the tax free growth on the extra savings) on his income than someone who was a basic rate tax payer in their working life.

it’s actually one of the most grossly unfair things about the pension system!

(to make if fair there should only ever be 20% tax relief on pension contributions for everyone… meaning that he should have been paying 25% tax on his contributions to have the same outcome as a lower earner).

Unbelievable.

Please don’t tell me he actually thinks this too??

Good on him. I applaud any win for the little man.

When the super rich, MPs, starbucks, Boots, Google etc are made to pay their fair share, I might change my mind. Until then, crack on to take any win you can, I say.

I think it's more that tax is not as black and white as you thought it was.

It's perfectly reasonable to question tax policy. It's quite another to create a new tax rule from a position of ignorance, as you have, and not to understand how your change might work in practice. Will it work? Is it fair? How do you define it? How does it work at the marginal levels?

Why should someone pay more tax on a salary of £52,000 than someone on a salary of £50,000 who earns £2,000 as a side income?

What about someone who earns £40,000 and earns £12,000 as a side income?

What about someone who has no salaried income but has 26 side hustles each earning them £2,000?

No, as a principle, it's not reasonable that different income streams should be taxed at different rates. (It would be far more reasonable, for example, if unearned income/wealth was taxed as highly as earned income.)

To put it simply:

For every £10 a basic rate earner puts into their pension, the government has paid £2 by not taking the tax off it before you contributed. It’s an incentive to save and you then pay that incentive back at the same rate in retirement. You get the benefit of tax free growth on that £2 over time (less 20%).

For every £10 your DH put into a pension the government paid £4.50. Difference is that he will only ever have to pay back £2 of that if he’s taxed at 20%. So he pockets the extra £2.50 for every £10, because he is a higher earner.

Then multiply that up by the bigger rates of contribution that people can make from a higher salary and you start to see the problem.

Fair?

PS.. to the poster above, I’m not sure I’d describe 45% tax payers as the little men if that’s what you were referring to?

Just stick 5K extra in your workplace pension via Salary Sacrifice. You'll get 40% tax relief plus 2% NI on your salary sacrifice, equivalent to your side hustle income.
You can draw the money out tax free from your pension, using the 25% tax free allowance, as soon as you reach age 55.
I'm not a financial planner, you want to get proper advice, but there you go. All legal and above board.

The level of financial illiteracy on display in some of these replies is astonishing.

Can prople please stop recommending that the OP set up a limited company! Running a limited company comes with a load of costs and obligations, and there is no way that it will ever be financially worth it for the small amount of income the OP is talking about here. (And the company will be taxed on its profits too, so it's not the magic wheeze some seem to think.)

Her best bet is to work out whether she is best off being taxed on the profits (which she could deduct expenses from) or turnover (where she gets £1k tax free, but cannot deduct expenses) of her second income stream, and leaving it at that.

The cost of an accountant will not be deductible if the OP also wants to use the £1,000 tax free trading allowance. It's one or the other.

Either you get the £1k allowance, but are assessed on your turnover with no deductions. Or you get to deduct all your expenses and only be taxed on the profits, but don't get the tax-free allowance.

The OP's individual circumstances will determine which works out best for her. If she has high expenses, it might be the latter.

I've looked into this, and with similar figures to you, OP. I've decided the easiest way to earn more is to get a promotion or another role, rather than risk spreading myself too thin for the sake of an extra £100 pcm after tax. I'd rather cut back on monthly costs instead.

Are you absolutely kidding me?

He saved a ton and got much better treatment than people on half his salary - government topped up by 40% but he only pays 20% tax on it. Tiniest violin.

And yet he is whingeing?

I made this point and the poster has mysteriously disappeared.

Well, why can’t they raise the tax-free amount to £17K for everyone?

I think your critical thinking skills and understanding of macro economics aren’t up to much. But yes, wouldn’t it be nice if we all got to keep more money AND we all had the same opportunities to earn AND there was no societal wealth inequality etc etc.

OP, if you want to avoid paying 40% tax on your "side hustle", the easiest way is to stop doing it, and not receive the 60% in income that you'd get after tax.

I’m here with my my arse well and truly whipped. I’ve been reading and digesting the replies to my post.( I’ve also been pairing socks)
Thank you for your second post to me Tenacious, where you explained how it works. I get it now. I don’t think I referred to him as one of the little men.

You can only add money to your pension "via salary sacrifice" if your employer offers/allows that. But yes, it's the way to do it if you can.

Although OP is saying they need the money due to COL so presumably doesn't want to contribute the extra to a penis.

OMG. I meant "a pension"!

Presumably OP doesn't want to contribute to "a pension", not to "a penis"!

They have already reviewed things - you used to have to declare all self-employed income, but now you don't have to if it's less than £1000 - exactly to allow small fry side hustles. There has to be a cut-off somewhere. I guess the question is where a side-hustle turns into a second job.