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.

Sounds like payment on account- you have to pay your full tax costs for next financial year in advance during your first year as a sole trader (and ongoing if your income fluctuates). Lots of people end up with large unexpected bills for this- myself and other sole traders I know save 50% of our ‘private work’ earnings (outside of our PAYE jobs) in order to make sure we can pay the bill (plus student loan and national insurance). Obviously the amount you save reflects how much you earn.

wouldn’t ever occur to me to declare money I made from surveys.

Any more than most people don’t declare what they make from selling stuff on eBay, vinted and the like.

I'm afraid you are wrong, look up trading allowance. You take 1k off anything you earn from a non paye side hustle.

Thank you. That looks absolutely nothing like the monstrosity ive just had to complete

The site i use declares to HMRC unfortunately

Yes I have just edited after checking - this rule didn't exist when I had a side hustle rather than full time and all extra income was just taxed as extra income.

But given this will apply to lots of people who have never done a tax return before I'm not impressed at the lack of clarity on government site!

I work in tax, the first £1000 is not always tax free but you can tick for trading allowance if you have no expenses to declare. You'll pay tax, Ni and student loan if applicable on the rest plus payments on account for next year

I suspect you registered as a company. You just have a side business and need to fill in a self assessment. It will have your paye details ready completed and you fill in a few boxes on the additional income pages.

You'll need to tell hmrc to unregistered you as a business and set up SA. You have until end January to complete it.

If you’re doing it as a trade and making over £1k then you absolutely should.

Tax, NICs, student loan? Have you ticked the trading allowance box?

Yes. I ticked everything that applied

I was a tax officer in the 90s (granted I wasnt menopausal then) but I am finding this incredibly confusing..

You shouldn’t need to ring HMRC to ask, you should have an itemised SA statement showing you what you’re paying at what rate from your various sources of income.

Thanks. Can I unregister online

Here’s what I have understood

If you earn less than £1k in your side hustle, HMRC doesn’t care, no tax to pay as it’s not worth the admin I guess. This lets off anyone who sells on eBay a bit

If you earn more than £1k they do want to know and tax you on it all.

That said, you should still only be paying about £400

ETA having read the thread it looks as tho I am wrong. Will do my tax return this weekend and see

Oh deary me. You work in tax??

the trading allowance was introduced quite a few years ago now. There is also a separate property allowance for rental businesses. You have a choice. Either claim expenses, or the £1k trading allowance.

OP, I really don’t know why it’s showing a liability that large. Perhaps it’s something to do with the tax code that’s been applied to your other income. It shouldn’t be payments on account as those don’t kick in until the liability is over £1k. I’d be able to tell if I saw the whole tax computation. I haven’t checked, but I don’t think NICs (class 2-4) should apply at that level either, but student loan repayments probably do.

Sorry for adding to confusion - it seemed clear cut when my accountant told me about it but reading the info now it's really not.

Although if you've been taxed at 20% of £2k would imagine the £800 is actually £400 for that tax year and £400 on account for next year - still hideous though!

Oooh yes have checked and you can either claim an allowance of £1k or expenses if they are more (eg you bought a new laptop - I did last year - and lots of consumables). Think last year my exes were high bc of £800 laptop, Microsoft licence etc. Not this year tho so will claim. Thanks for thread @labtest57

But I should only be paying tax on one thousand as the first thousand is tax free. I haven't claimed any expenses other than the 1000 allowance

@labtest57 This ^^

If it's surveys, you are not 'trading' and not running any kind of business. You are not a sole trader. You should be completing a self assessment return and putting the detail of the income under 'other income' You WILL pay tax on the whole £2000 - so around £400. If you had Gross income from the surveys of less than £1000 (i.e. before you take expenses off) you don't need to tell them - but if you have more, then you need to tell them the full amount. It will all be taxed at the rate you are on for your main job ( unless it takes you over to the next tax band)

That, too 🤮

Out of interest, which site/s are you using? I've upped my surveys in the last year, though not as much as £1000 . I definitely make less than 100 per month, often only £30-50 but it's something to be aware of.

Sole trader is just someone who works for themselves. And generally would be under self assessment

Prolific. Its quite profitable but this tax malarkey is doing my head in

Is the tax deducted from your salary correct?