Why does my side hustle tax bill seem so high?

[labtest57]

Hi
I am looking for some advice please. I work full time and pay paye tax on that job, but have been making extra doing surveys as a side hustle and this tax year have earned just over £2000. Today I attempted to fill in a sole trader tax return and the final calculation said I owed just over £800. By my calculations, with one thousand tax free and 20% tax on the rest, I should only owe £200. I have contacted HMRC and am passed from pillar to post and still none the wiser. I had to give all full time job info but surely that ia irrelevant anyway.

The £1000 isn't an allowance once you go over it, everything you make in a side hustle is taxed normally if you hit the usual annual tax free limit in your PAYE job.

Agree it's a bit of a shock to the system the first time though!

How much are you earning in your paye role?

£24,000. My understanding was i had £1000 tax free on a side hustle then 20% tax on everything over that £1000, so in this case £200 as 20% of the extra thousand.

But £800 of £1000 is not normal tax. Yhe rules for a side hustle are 20% tax on all earnings over £1000 so in ny case £200

OP, you're personal allowance for 2025-26 was £12,570.

Anything you earned from any source over that amount is taxed.

Yes but it should be taxed at 20% of anything over £1000

You should add it to your PAYE earnings and calculate tax based on that. If you’re in the 20% tax band, it’s 20% tax on full 2k and if that 2k has pushed your total earnings into next tax band (40%) which it looks like what has happened. 40% of 2k is 800 (plus NI?).

You are right here. The 1k is an allowance as long as you also aren't claiming costs. Its wrong, you've got until end January to file so wait a bit then contact them if it doesn't correct..

Happened to my dad he was taxed on his personal pension he said he was being over taxed they said no he isnt he died they have given him a refund because they charged him too much tax

side hussle 🤮

There is a 1k allowance for side hustle type work. She should pay tax on whatever is over that at the correct rate which for her salary would be 20=

Actually op, you are filling in a self assessment here aren't you? Not declaring yourself a company?

It goes in the self assessment additional income pages, and you can select to claim expenses or know k off the 1k.

Thanks. Thats what I always thought. My full time job is irrelevant to a side hustle and I dont earn a lot from that either, hence becoming a sole trader. HMRC are being incredibly unhelpful.

'Sole trader' suggests you are filling in a company return to me.

You are an individual needing to pay income tax self assessment to declare additional income.

I was initially told to register as a sole trader

You have misunderstood this. It will be 20% on all £2k, plus national insurance. I usually allow for 25% of my net self employed income to be tax and national insurance. It still sounds as though they have charged you more, but my guess is some of that is in advance for next year. They do this to try to spread out the cost, and to avoid issues when you stop having the self employed income.

Hustle! And thats how its referred to online.

Your full time job isn’t irrelevant. For tax allowance purposes, the income from both is added together. If your side hustle took you over the higher tax threshold, you’d be paying higher rate tax on it, because of your employed income.

No. It is definitely a £1000 tax free allowance then 20% on anything over that. Full time paye job is not relevant.

Yes, part of this will be a payment on account for next year, on the freelance income.
If you earn less next year, you will get a refund on the PoA when you comp.ete your next Tax Return.

I think the £1,000 is allowable expenses that you don't have to itemise (or prove), somewhere you need to take it off your sole trader income for tax purposes, I don't think it's done automatically.

£600 extra towards next year seems like overkill though.

I did and this was the calculation I got

Here's screenshot from my self assessment last year. I earned just over the 1k (purposefully) and was taxed on the additional. You need to fill in a self assessment.

Edit to add I think the gov.uk website needs to make this a lot clearer - my business is now full time so none of this applies to me but having just read the website, it looks like you can claim £1000 tax free allowance for side hustles if you don't claim any costs/expenses, but if you claim expenses then there is no allowance. But not super clear at all.

My original post below!

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As pp, the £1000 is only tax free if that's all you earn from a side hustle and you don't claim costs.

Otherwise it's just treated as extra income and taxed as it would be at whatever level like if it was another job or a pay rise. Student loan repayments on side hustle earnings have also caught me by surprise before.

As far as HMRC is concerned you are one person with one tax allowance no matter how many jobs or businesses / side hustles you have, so the allowance applies to your total income.

Agree it's not the clearest wording in the world though and the £1k is quite a new concept.