Many of the UK’s most recognisable business ventures originated as modest secondary projects run from spare bedrooms.
Before selling her empire to Estée Lauder for millions, fragrance pioneer Jo Malone started by blending scented oils and preparing face creams at home while working as a teenage floristry assistant.
Similarly, business titan Richard Branson launched his commercial career selling mail-order records at reduced prices before building Virgin, while Lord Alan Sugar began by trading electrical items on the side, laying the foundations for Amstrad.
A small side project can quickly grow into a substantial enterprise. To assist prospective entrepreneurs, financial experts have outlined key considerations for managing the administrative side of a secondary income.
When to declare earnings to HMRC
"If your side hustle is selling on Vinted and doesn’t go above the trading allowance of £1,000 that HMRC allows you to earn tax-free, then you don’t need to notify anyone," explains Abigail Foster, accountant and personal finance expert at Compare The Market.
"However, if you’re turning over more than £1,000 from your side hustle in a 12-month period, that’s April 6 to April 5, that money could be taxable."
Crossing that threshold requires submitting a Self Assessment registration with HMRC to report the revenue.
"Everyone is allowed £12,570 of income before tax, but if you are employed, chances are that you’ve used up that. So, people need to be aware that side hustle income sits on top of their income," Foster notes.
Earning extra revenue by listing property or rooms on sites like Airbnb is also popular, though specific tax regulations apply.
"If you’re renting out of room in your house, and you’re still living there, you get an allowance of £7,500 each tax year. But if you leave and rent out the entire flat on Airbnb, that’s rental income and is separate," the accountant clarifies.
Managing business banking
"The very first thing that anyone running a side hustle should do is set up a separate bank account," advises Foster. "You don’t have to set up as a sole trader to start. If you’re thinking, "Oh, I might only make £500, but I could make £5,000,’ separate out the finances early on because it’s so tricky to go back and clean it up."
Helena Okunzuwa, influencer and co-founder of platform The Shade Borough, took this exact approach when starting out at university.
"When I was at university in 2013, I used to flip shapewear on eBay," says Okunzuwa. "When I started, selling on eBay meant you needed a PayPal account, and money from sales went straight into that business account."
Under current government guidelines, digital marketplaces including eBay, Vinted, Etsy and Airbnb automatically transmit seller data to HMRC if individuals surpass specific limits, such as completing 30 transactions or reaching £1,700 in sales.
Tracking income and outgoings
Every financial transaction must be recorded, whether logged manually on a basic spreadsheet or through specialized software. Various automated tools can connect directly with bank accounts to simplify bookkeeping, though entrepreneurs should confirm which systems their accountant prefers.
"I use Xero for expenses and running payroll, and Revolut for my banking," Foster states. "But there are many other options as well – like QuickBooks and Sage."
Knowing when to hire an accountant
"If you’re making over £90,000 in a tax year, you need an accountant because at that point you become VAT liable and if you employ someone, it’s worth speaking to an accountant," advises Foster. "Furthermore, if you are consistently making probably £1k-£2k a month, you should see an accountant."
She compares selecting an accountant to finding the right hairdresser.
"If they’re not giving you a good experience, walk away," she cautions.
Okunzuwa reinforces the importance of thorough research: "You have to do your due diligence when finding the right accountant. We didn’t get it right. There were so many mistakes on our first filing at Companies House, that our second accountant had to correct them."
Pitfalls to avoid
"Compare The Market did some research back in July which found that 47% said their spending had increased in line with their income, known as ‘lifestyle creep’," says Foster. "I think this is very prevalent with side hustles.
"People start one, think that they’re making loads of money and then spend it all, forgetting that it’s not like employment income which is net of tax. Side hustle money is gross, and you need to keep some back to cover your tax liability."
Reflecting on her own journey, Foster adds a final warning against overspending early on: "I spent too much too early on investing in things that I really didn’t need – like tech, so try to avoid that."
