If you earn fees or sell goods as a side hustle, you may need to pay tax on your profits.

HMRC has launched a new press release encouraging Christmas crafters and anyone with a fee earning hobby to check their tax reporting obligations as part of its Help for Hustles campaign. This is relevant to individuals earning extra income, whether from crafting Christmas decorations, selling festive items at market stalls, or upcycling furniture for seasonal sales. Those earning more than £1,000 in total from these activities may need to report their earnings to HMRC.

To help these side hustlers navigate their tax obligations, HMRC has introduced an online checker tool that helps individuals determine whether or not they need to declare additional income.

There are two £1,000 tax allowances available for small amounts of miscellaneous income: one for trading income and one for property income. Taxpayers who have both types of income can claim £1,000 for each.

• Trading Allowance: If a taxpayer makes up to £1,000 from self-employment (e.g., craft sales or content creation), this income is tax-free and doesn’t need to be declared. However, the £1,000 threshold applies to all combined trading activities. For example, if someone earns £600 from craft sales and £500 from content creation, their total trading income exceeds £1,000 and must be reported to HMRC.
• Property Allowance: If a taxpayer earns £1,000 or less from property-related activities (e.g., renting out a driveway), they don’t need to report this income to HMRC or include it in their tax return.

These allowances cover all relevant income before expenses. If a taxpayer's income is under £1,000, it’s tax-free. If they earn more than £1,000, they can either deduct the £1,000 allowance from their income or list their actual expenses when calculating taxable profit.

However, if side hustle income exceeds £1,000 in a tax year, taxpayers may need to complete a Self-Assessment tax return. This also includes income from cryptoassets. Importantly, this requirement applies only to active trading or selling services. If someone is just clearing out old items, there is usually no need to worry about tax.

For the 2024-25 tax year, the deadline to submit a tax return online and pay any tax owed is 31 January 2026.

If you are unable to pay your tax bill, it's important to reach out to HMRC as soon as possible.

HMRC may offer a Time to Pay arrangement, allowing you to settle the debt in manageable instalments based on your financial situation.

Taxpayers with liabilities of up to £30,000 can use the online Time to Pay (TTP) service to set up instalment payments. This service is available without the need for direct contact with an HMRC advisor and can be accessed up to 60 days after the payment deadline.

To be eligible for the online service, the following conditions must be met:

• No outstanding tax returns
• No other unpaid tax debts
• No existing HMRC payment plans

For those who do not qualify for the online option, alternative payment plans can be arranged. These plans are typically tailored to the individual's or business's specific financial situation, allowing repayment over an agreed period.

HMRC will generally grant extended payment terms if they believe you will be able to pay the full amount in the future. However, if HMRC determines that additional time won't resolve the issue, they may require immediate payment and take enforcement actions if the debt remains unpaid.

It is quite common for tax codes to be wrong, particularly if your income or employment situation has changed, so it is worth taking a few moments to check that HMRC has the correct information about you.

HMRC usually updates your tax code automatically when your income changes, using information provided by your employer. However, if HMRC has inaccurate details about your income you may be given an incorrect tax code. To fix this, ensure HMRC has your up-to-date income details and check what you need to do if you are on an emergency tax code.

If you believe your tax code is wrong, you can use HMRC’s Check your Income Tax online service to update employment details or to report income changes that might affect your tax code. For example, you can add company benefits, missing income sources, claim employment expenses and update your estimated taxable income. HMRC may then adjust your tax code based on these updates.

If you cannot access the online service, you can contact HMRC directly. Once your details are updated, HMRC will inform both you and your employer or pension provider if your tax code changes. Your next payslip should show your new code and any corrections to your pay.

At the end of the tax year, if you have paid too much or too little tax, HMRC will issue either a P800 tax calculation letter or a Simple Assessment letter to explain any refund or amount owed.

If you file a Self-Assessment return you may need to pay your tax in three instalments, so it is useful to know when payments on account apply and when they can be reduced or removed.

The first two payments on account are due by 31 January during the tax year and by the 31 July after the tax year has ended. Each payment on account is based on 50% of the previous year’s net Income Tax liability. Additionally, the third (or balancing) payment is due on 31 January after the tax year ends.

However, there are certain situations where you do not need to make payments on account such as:

1. Your last tax bill is under £1,000. If your self-assessment tax bill for the previous year is less than £1,000, you will not be required to make payments on account.
2. You have already paid the tax through other means. If at least 80% of the tax due has already been collected through other means, such as PAYE, then payments on account are not required. This might apply if you are employed and have sufficient tax deductions taken from your salary.
3. You have a low or no income in the current tax year. If you expect your income to be much lower in the current year, you can apply to reduce or cancel your payments on account. This can be done through HMRC’s online service or by submitting form SA303.

There is no limit on the number of times you can apply to adjust your payments on account. If your liability for 2024-25 is lower than for 2023-24, you can request HMRC to reduce your payments. The deadline to submit a claim to reduce your payments on account for 2024-25 is 31 January 2026.

If your taxable profits have increased, there is no obligation to inform HMRC, but your final balancing payment will obviously be higher.

For the current tax year, taxpayers with adjusted net income between £100,000 and £125,140 will face an effective marginal tax rate of 60%, as their £12,570 tax-free personal allowance is gradually withdrawn.

If a taxpayer earns over £100,000 in any tax year, their personal allowance is gradually reduced by £1 for every £2 of adjusted net income exceeding £100,000. This ceiling applies regardless of age, meaning that any taxable receipt that pushes their income above this threshold will lead to a reduction in their personal tax allowances. If their adjusted net income reaches £125,140 or more, the personal Income Tax allowance will be reduced to zero.

Adjusted net income refers to a taxpayer’s total taxable income before personal allowances, minus certain tax reliefs such as trading losses, charitable donations, and pension contributions.

Taxpayers in this income band should consider financial planning strategies to avoid this "personal allowance trap." Reducing income below £100,000 could be achieved by utilising options like increasing pension contributions, making charitable donations, or participating in certain investment schemes.

For higher-rate or additional-rate taxpayers seeking to reduce their tax bill, gifting to charity is one strategy. Donations made in the current tax year can be carried back to the 2024-25 tax year, provided the taxpayer requests the carry-back before or at the same time as submitting their self-assessment return, but no later than 31 January 2026.