With many individuals starting a \u2018side hustle\u2019 to supplement their salary, setting up as a sole trader or limited company is the first big decision.<\/p>\n
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Whether this is selling personalised jewellery on Etsy or re-selling clothes on Vinted, any gross income over the \u00a31,000 casual trading allowance requires a Self Assessment tax return.<\/p>\n
While both structures are legitimate, the best choice depends on an individual\u2019s current Income Tax banding and what they plan to do with profits.<\/p>\n
When you are a sole trader, any profit from your side hustle is added on to your main employment income.<\/p>\n
This means HMRC puts both income streams into the same pot when calculating Income Tax.<\/p>\n
For those working full time, their personal allowance has already been eaten by their salary, which means any pound of profit earned as a sole trader is taxed at their marginal rate.<\/p>\n
In practice, imagine you earned \u00a340,000 from full-time employment and your side hustle makes \u00a312,000 profit \u2013 this would make your total annual income \u00a352,000.<\/p>\n
As your side income is on top of your salary, most will be charged at your marginal tax rate.<\/p>\n
You\u2019d pay \u00a32,746 in Income Tax from the side hustle, according to the 2026\/27 rates<\/a>.<\/p>\n If you have a student loan, repayments might increase if your additional earnings push you over the threshold.<\/p>\nLimited company tax: What do I need to know?<\/strong><\/h3>\n