For many Britons, the rise of flexible working and the post-pandemic digital economy has turned side hustles into serious secondary incomes. Whether you freelance as a graphic designer, rent out a spare room on Airbnb, sell crafts online, or offer consulting in your spare time, a side hustle can be both liberating and lucrative. Yet with opportunity comes responsibility—particularly when it comes to tax.
As the end of the tax year approaches on 5 April, every self-employed individual and side hustler should be reviewing their finances to ensure they’re not overpaying HMRC. With smart timing, record-keeping, and strategic use of available allowances, you can legitimately save £3,000 or more in tax before the deadline.
This comprehensive guide explains how.
1. Understand Your Tax Position
If you’re self-employed, you’re taxed on profits, not turnover. That means your taxable income equals total income minus allowable expenses. HMRC defines a side hustle as self-employment if you trade regularly with the intention of making a profit.
You’ll need to register for Self-Assessment once your earnings exceed £1,000 per tax year. Once registered, you’ll pay:
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Income Tax on profits above the personal allowance (£12,570 for 2024/25)
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Class 2 and Class 4 National Insurance Contributions (NICs)
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Possibly VAT, if your turnover exceeds £90,000
Understanding this framework is the first step to making informed tax-saving decisions.
2. Claim Every Allowable Expense
One of the simplest ways to cut your tax bill is to deduct all legitimate business expenses. Many self-employed people underestimate what qualifies.
You can usually claim for:
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Office supplies, software subscriptions, and professional tools
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Website hosting, domain names, and advertising
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Travel costs (excluding commuting), parking, and mileage
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A portion of home utilities if you work from home
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Mobile phone bills proportionate to business use
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Accountancy and professional fees
For example, if your turnover is £40,000 and you incur £8,000 in eligible expenses, your taxable income falls to £32,000—saving over £1,600 in Income Tax and NICs combined.
Keep digital records or use an app like QuickBooks, FreeAgent, or Xero to make this process effortless.
3. Use the £1,000 Trading Allowance
If your side hustle is small—say, occasional tutoring or selling handmade items—you may not need to register as self-employed. The £1,000 trading allowance means you can earn up to that amount annually tax-free without declaring it.
If you earn slightly more, you can either:
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Deduct the £1,000 allowance from your income instead of claiming actual expenses, or
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Deduct your actual expenses if they exceed £1,000.
Choosing the right option could save hundreds in unnecessary tax.
4. Deduct a Proportion of Home Office Costs
The self-employed often underestimate how much of their home running costs they can claim. If you work from home regularly, you can apportion expenses such as:
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Electricity and gas bills
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Rent or mortgage interest (proportionate to workspace)
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Council tax
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Internet and phone bills
HMRC also offers a simplified flat-rate method:
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£10 per month (25–50 hours of business use per month)
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£18 per month (51–100 hours)
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£26 per month (101+ hours)
A blended approach—flat rate for utilities, actual cost for broadband—can be most efficient.
5. Consider Capital Allowances
If you purchase equipment for your side hustle—such as a laptop, camera, or tools—you may be able to claim capital allowances. Under the Annual Investment Allowance (AIA), you can deduct the full cost of most assets up to £1 million.
This means that if you buy a £2,000 laptop before 5 April, your taxable profit instantly reduces by the same amount—cutting your tax bill by up to £800 depending on your tax band.
6. Maximise Pension Contributions
A particularly effective way to lower your taxable income—and secure your financial future—is through pension contributions.
Contributions to a personal or self-invested pension (SIPP) are tax-deductible up to the lower of:
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£60,000, or
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100% of your annual earnings.
If you’re a higher-rate taxpayer, for every £1,000 contributed you can reclaim up to £400 in tax relief.
Making a lump-sum pension payment before 5 April could instantly reduce your tax liability while boosting long-term savings.
7. Make Charitable Donations via Gift Aid
If you give to registered charities, don’t forget Gift Aid. For every £1 you donate, the charity can claim back 25p, and if you’re a higher-rate taxpayer you can personally claim an additional 20–25% relief through Self-Assessment.
It’s a powerful way to support causes you care about while reducing your tax bill.
8. Offset Losses
If your side hustle is still in its early stages and running at a loss, you can often offset those losses against other taxable income—such as salary from your main job.
This can lead to a tax rebate. For instance, a £5,000 business loss could reduce your total taxable income for the year by the same amount, saving up to £2,000 depending on your marginal rate.
9. Split Income or Transfer Allowances (for Couples)
If you’re married or in a civil partnership, there are several ways to optimise tax efficiency:
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Marriage Allowance Transfer: If one partner earns below the personal allowance and the other is a basic-rate taxpayer, you can transfer £1,260 of allowance, saving up to £252 per year.
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Income Splitting: If your spouse assists in the business, you may be able to pay them a reasonable wage for genuine work, shifting income into a lower tax band.
Used properly, these small adjustments can easily save £500–£1,000 annually.
10. Defer or Accelerate Income Strategically
Timing can make a significant difference. If you expect to enter a lower tax band next year—for example, due to reduced working hours or a career change—you might defer issuing invoices until after 5 April.
Conversely, if you anticipate higher earnings next year, consider accelerating income into the current year and bringing forward deductible expenses (like equipment purchases or training).
Good timing can shift hundreds or even thousands of pounds between tax years, optimising your liability.
11. Use the £1,000 Property Allowance
If your side hustle involves renting out a room, parking space, or short-term holiday let, you may benefit from the property allowance.
Like the trading allowance, the first £1,000 of property income is tax-free. Beyond that, you can either deduct the £1,000 allowance or claim actual expenses—whichever gives the larger deduction.
For homeowners letting rooms to lodgers, the Rent-a-Room Scheme offers up to £7,500 per year tax-free—a major saving for those monetising unused space.
12. Pay Into an ISA
While ISAs don’t reduce income tax directly, they protect your savings and investments from future tax on interest, dividends, and capital gains.
For 2024/25, you can invest up to £20,000 into an ISA. If your side hustle income fluctuates, using an ISA provides a flexible, tax-efficient safety net.
13. Manage Your National Insurance Efficiently
Self-employed workers pay Class 2 and Class 4 NICs, but you can still optimise contributions.
If your profits fall below £12,570, you can voluntarily pay Class 2 contributions (£3.45 per week) to preserve eligibility for State Pension and other benefits.
However, if your earnings are marginally above the threshold, it might be worth reinvesting in deductible expenses or pension contributions to bring profits down slightly—saving more in NICs and Income Tax combined.
14. Keep Impeccable Records
You cannot claim what you cannot prove. HMRC’s Making Tax Digital (MTD) initiative requires digital record-keeping for many self-employed taxpayers.
Maintain:
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Scanned receipts
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Invoices and statements
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Mileage logs
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Bank records and reconciliation reports
Good records ensure every deduction is defensible—and prevent costly penalties if HMRC investigates.
15. File Your Tax Return Early
While the official Self-Assessment deadline is 31 January, submitting early has several benefits:
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You’ll know your exact bill months in advance.
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You can budget or make a final pension contribution before April.
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You’ll avoid last-minute filing errors and stress.
Early filing doesn’t mean early payment—you can still settle your bill by 31 January, keeping cash flow flexible.
16. Hire a Professional Accountant
Even the most diligent side hustlers can miss subtle reliefs and allowances. A qualified accountant doesn’t just file your return—they strategically plan your tax affairs.
Professionals understand how to structure income, claim partial reliefs, and ensure compliance with evolving HMRC regulations such as Making Tax Digital. The fee you pay often yields multiples in tax savings.
If you’re considering expert assistance, My Tax Accountant offers comprehensive personal tax services designed for freelancers and self-employed professionals. Their guidance can help ensure you claim every allowance available before the 5 April deadline.
17. Leverage Professional Development and Training
Courses and certifications directly related to your business can often be deducted as training expenses—provided they maintain or improve existing skills rather than teach an entirely new trade.
Spending £1,200 on a professional course before April could both enhance your earning potential and reduce your taxable profit for the year.
18. Review Your Business Structure
If your side hustle is expanding, it may be time to assess whether remaining a sole trader is still optimal.
A Limited Company structure can:
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Allow profit distribution through dividends (often taxed at a lower rate)
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Provide access to Corporation Tax reliefs
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Offer improved liability protection
However, incorporation adds administrative responsibility, so weigh benefits carefully with your accountant.
19. Stay Updated on Allowance Changes
Each tax year brings new thresholds, rates, and policy tweaks. For 2025/26, the personal allowance and tax bands may remain frozen, creating “fiscal drag”—where inflation pushes more income into higher bands.
Understanding these shifts lets you plan investments, pensions, and withdrawals strategically before they take effect.
20. Take Action Before the Deadline
Many of these strategies—pension top-ups, capital purchases, charitable donations—must be executed before 5 Aprilto count for the current tax year.
Don’t wait until the final week. Begin today:
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Gather income and expense records.
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Review potential deductions and allowances.
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Schedule a consultation with a tax professional.
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Act on decisions by 31 March to allow for payment processing.
Procrastination is the biggest enemy of tax efficiency.
Conclusion
The freedom of self-employment comes with the duty to manage your finances wisely. A little proactive planning before 5 April can easily save £3,000 or more in tax—money that can fund your business, bolster your savings, or simply give you peace of mind.
Tax optimisation isn’t about loopholes or avoidance; it’s about understanding the system and using it responsibly. From home-office claims to pension contributions and digital record-keeping, every small step compounds into significant savings.
So, as the tax year draws to a close, treat your side hustle like a business, not just a hobby. The rewards—financial and personal—will follow naturally.
