How Much Should I Put Aside for Tax If I’m Self-Employed?

I Earned Over £1,000 From a Side Hustle – What Do I Do Now?

Maybe your side hustle started as a bit of extra money.

A few freelance jobs. Some tutoring after work. Selling handmade products online. Weekend beauty appointments. Deliveries. Photography. Gardening. Baking cakes.

Then you add everything up and realise:

I've earned more than £1,000. Do I need to tell HMRC?

Don't panic.

Going over £1,000 doesn't automatically mean you have a huge tax bill. But it is an important point because you may now need to tell HMRC about your income.

Here's what you need to know.

What Is the £1,000 Trading Allowance?

The Trading Allowance is a tax allowance of up to £1,000 a tax year for certain trading, casual and miscellaneous income.

For someone running a small side hustle, it can mean that if your qualifying gross trading income is £1,000 or less, you may not need to tell HMRC about it.

However, there are exceptions, and the allowance doesn't apply in every situation.

The important thing is understanding what HMRC means by £1,000 of income.

Is the £1,000 Based on Income or Profit?

This catches a lot of people out.

The £1,000 threshold is based on your gross trading income, before expenses are deducted.

For example, imagine you sell handmade stationery.

During the tax year, customers pay you:

£1,500

You spend:

£800

on materials, packaging and other costs.

You might think:

"I only made £700, so I'm under the £1,000 limit."

But that's not how the threshold works.

Your gross trading income was £1,500.

So you've exceeded £1,000 and should check whether you need to register for Self Assessment and report the income.

Does Going Over £1,000 Mean I Pay Tax on Everything?

No.

This is another important distinction.

The £1,000 figure isn't simply a point where HMRC suddenly taxes every pound you've received.

Your actual tax position depends on your taxable profit, your other income and your circumstances.

If your trading income exceeds £1,000, you may also have a choice between using the Trading Allowance or deducting your actual allowable business expenses when calculating your taxable trading profit.

Trading Allowance or Actual Expenses?

Suppose your side hustle brings in £4,000 during the year.

Your actual allowable expenses are only £400.

Using the £1,000 Trading Allowance could potentially mean calculating your taxable trading income as:

£4,000 − £1,000 = £3,000

But imagine your actual allowable expenses were £1,600.

Using actual expenses could instead give:

£4,000 − £1,600 = £2,400

In that example, claiming your actual allowable expenses could be more beneficial.

You generally cannot deduct the £1,000 Trading Allowance and then claim your actual business expenses against the same income.

It's normally one method or the other.

What If I Have More Than One Side Hustle?

Be careful here too.

You shouldn't automatically assume that you receive a separate £1,000 Trading Allowance for every little business or side hustle you have.

For example:

Tutoring: £700 Freelance design: £600

Total trading income:

£1,300

Even though neither activity individually generated more than £1,000, you may need to consider the relevant trading income together.

What If I Already Have a Full-Time Job?

Having a PAYE job doesn't mean your side-hustle income is automatically dealt with.

Your employer normally deducts Income Tax from your salary through PAYE.

They don't automatically know that you've earned another £3,000 designing websites, tutoring, delivering food or selling handmade products.

For example:

Employment salary: £32,000 Side-hustle income: £4,000

The £32,000 salary may already have tax deducted through PAYE.

But you still need to deal with the separate £4,000 of trading income correctly.

What Should I Do If I've Gone Over £1,000?

Start by working out exactly how much you received.

Don't guess.

Look through your:

Bank transactions

PayPal or other payment accounts

Online selling platforms

Invoices

Cash payments

Booking systems

Sales records

Work out your total gross trading income for the relevant tax year.

Remember that the UK tax year runs from 6 April to 5 April.

Then start organising your expenses.

What Expenses Should I Record?

If you're going to claim actual business expenses rather than the Trading Allowance, good records become particularly important.

Depending on your business and HMRC's rules, potentially allowable expenses could include things such as:

Materials and stock

Postage and packaging

Platform fees

Advertising

Business software

Certain travel costs

Professional fees

Office costs

Certain phone costs

Equipment used for the business

Not everything you buy while running a business automatically becomes a tax-deductible expense.

Personal spending generally cannot simply be put through the business because you happen to be self-employed.

Where something has both business and personal use, additional rules can apply.

Do I Need to Register as Self-Employed?

If you're trading as a sole trader and your gross trading income is more than £1,000 in the tax year, you will generally need to check whether you must register for Self Assessment.

Don't assume that being employed elsewhere means you don't need to register.

You can be employed and self-employed at the same time.

What If I Only Went Over £1,000 by a Few Pounds?

The same rules still need to be considered.

If you received:

£1,005

you shouldn't simply ignore it because you were only £5 over.

However, exceeding £1,000 doesn't mean HMRC automatically sends you a bill or penalty.

It means you need to check your reporting obligations and deal with the income correctly.

What If I Went Over £1,000 Last Year and Didn't Tell HMRC?

This is where it's especially important not to bury your head in the sand.

Perhaps you've just discovered that you earned:

£1,800 last year

or maybe you've been earning a few thousand pounds from a side hustle for several years without realising you may have needed to report it.

Start by working out what happened.

For each affected tax year, establish:

Your total income

Your business expenses

Your approximate profit

What records you still have

Whether you submitted a tax return

Whether the income should have been reported

If you think you should have declared income in previous years, take action rather than waiting for HMRC to contact you.

If several tax years are involved or you're unsure how to correct your position, getting professional tax advice can be sensible.

What If I Sell on Vinted, eBay, Etsy or Facebook Marketplace?

Selling something online doesn't automatically make you a business.

There's an important difference between:

selling your own unwanted possessions

and

buying, making or acquiring things with the intention of selling them for profit.

For example, selling your children's old clothes or an unwanted sofa is very different from regularly buying products specifically to resell them.

The tax position depends on what you're actually doing, not simply which platform you're using.

Can Online Platforms Give My Information to HMRC?

Certain digital platforms have reporting obligations and may collect information about sellers and their transactions.

But a platform reporting information does not automatically mean you owe tax.

HMRC still has to consider the nature of the activity and the relevant tax rules.

This is why you shouldn't panic simply because an online marketplace asks for your tax information.

Do I Need to Keep Receipts?

Good record keeping is one of the best habits you can establish when your side hustle starts growing.

Don't wait until your tax return is due.

Keep track of your income as it happens.

For every expense, record:

Date → Supplier → Amount → What you bought → Why it was for the business

Keep the receipt or invoice where appropriate.

Do the same with your income.

The £20 cash payment from a customer still counts just because it never arrived through Stripe or PayPal.

Should I Have a Separate Bank Account?

A sole trader doesn't necessarily need a separate business bank account purely for tax purposes.

However, keeping business and personal transactions separate can make record keeping significantly easier.

If every supermarket shop, restaurant payment, salary payment and business expense is mixed together in one account, working out your business figures later becomes much more difficult.

How Much Tax Will I Actually Pay?

Going over £1,000 doesn't tell us how much tax you'll owe.

Your eventual tax bill can depend on things such as:

Your trading profit

Employment income

Other taxable income

Personal Allowance

Income Tax band

National Insurance rules

Other allowances or deductions

Your individual circumstances

Someone making £3,000 from a side hustle alongside a £20,000 salary can have a different tax position from someone making the same £3,000 alongside a £70,000 salary.

Does Going Over £1,000 Mean I Have to Use Making Tax Digital?

No.

This is another area where the different HMRC thresholds can become confusing.

The £1,000 Trading Allowance and the income thresholds for Making Tax Digital for Income Tax are separate rules.

Going over £1,000 does not, by itself, mean you suddenly have to start submitting MTD quarterly updates.

You need to look separately at whether and when the MTD rules apply to you.

Five Things to Do Today

If you've just realised your side hustle has gone over £1,000, keep it simple:

Work out your total gross income.

Check which tax year the income belongs to.

Gather your receipts and expense records.

Check whether you need to register for Self Assessment.

Start keeping proper records from now on.

The worst approach is simply ignoring it because tax feels complicated.

Frequently Asked Questions

I earned £1,500 but only made £500 profit. Am I under the £1,000 limit?

Not simply because your profit was £500. The £1,000 Trading Allowance threshold concerns gross trading income before expenses.

I have a PAYE job. Do I still need to declare my side hustle?

Potentially, yes. PAYE deals with your employment income. Separate trading income may still need to be reported.

Can I claim £1,000 plus all my expenses?

Generally, you don't deduct both the Trading Allowance and your actual business expenses from the same income. You normally use the relevant method that applies to your circumstances.

I made exactly £1,000. Do I need Self Assessment?

If your qualifying gross trading income is £1,000 or less, the Trading Allowance may mean you do not need to tell HMRC about that income. There are exceptions, however, so your circumstances still matter.

Does £1,000 mean £1,000 profit?

No. This is one of the most important things to remember. The threshold relates to gross trading income, not simply the amount left after your expenses.

Will HMRC know about my online sales?

HMRC can receive information from various sources, including information reported by certain digital platforms. Your responsibility to report taxable income doesn't depend on whether you think HMRC already knows about it.

Final Thoughts

If your side hustle has just crossed £1,000, don't panic — but don't ignore it either.

Going over £1,000 doesn't automatically mean you have a huge tax bill.

It does mean it's time to take your side income seriously.

Work out how much you've actually received, organise your expenses, check whether you need to register with HMRC and start keeping proper records.

A side hustle can grow surprisingly quickly.

Getting your tax records organised while you're earning £1,000 or £2,000 is much easier than trying to untangle everything once you're earning £10,000 or £20,000.

And the key number to remember is:

The £1,000 threshold is about gross trading income — not simply your profit.

Disclaimer

This article is for general information purposes only and does not constitute tax, legal or financial advice. Tax rules, allowances and HMRC procedures can change, and individual circumstances vary. Always check current HMRC guidance or consult a qualified UK tax adviser or accountant for advice tailored to your situation.

img to that pleaseEditToday 10:09 AMcan you write next blog post

Yes. Following the real-question strategy, the next post should be “How Much Should I Put Aside for Tax If I’m Self-Employed?” People repeatedly ask this in UK tax forums, especially when they have irregular income or a PAYE job alongside self-employment. A major source of confusion is also payments on account, which can make the first substantial January bill much bigger than expected.

I checked the figures against current HMRC guidance before writing it. For 2026/27, Class 4 NI is 6% on self-employed profits between £12,570 and £50,270 and 2% above £50,270.

Title

How Much Should I Put Aside for Tax If I’m Self-Employed?

Slug

how-much-put-aside-for-tax-self-employed

Category

Self Employment

Excerpt

Not sure how much of your self-employed income to save for HMRC? Here’s a simple guide to putting money aside for Income Tax, National Insurance and your first Self Assessment bill.

How Much Should I Put Aside for Tax If I’m Self-Employed?

You get paid £1,000 by a client.

But how much of that money is actually yours?

Should you save £200 for HMRC? £300? 40%?

If you've recently become self-employed, this is one of the most important questions to get right.

Unlike an employee, you usually don't have an employer automatically taking Income Tax from every payment you receive.

That means you need to prepare for the tax bill yourself.

So, how much should you put aside?

A Simple Starting Point: Consider Saving 25% to 30%

There isn't one percentage that works for every self-employed person.

Your actual tax bill depends on your profit, other income, allowances and circumstances.

But as a budgeting starting point, someone expecting to remain within the basic-rate tax band might consider putting approximately:

25% to 30% of their taxable self-employed profit aside.

This isn't an HMRC rule or a tax rate.

It's simply a savings buffer designed to stop you spending money that may eventually be needed for Income Tax and National Insurance.

If you're a higher earner, have significant PAYE income as well, receive other taxable income or have student loan repayments, you may need to save considerably more.

Don't Save a Percentage of the Wrong Number

There's an important distinction between:

Turnover — all the money your business receives.

and

Profit — broadly, your business income minus allowable business expenses.

Self-employed Income Tax and Class 4 National Insurance are generally based on your taxable profits rather than simply every pound customers pay you.

For example:

You receive £30,000 from customers.

You have £5,000 of allowable business expenses.

Your profit before considering other adjustments would broadly be:

£25,000

That's very different from simply calculating tax on £30,000.

How Does Income Tax Work?

Most people have a Personal Allowance — an amount of income they can receive before paying Income Tax.

But your Personal Allowance isn't necessarily reserved exclusively for your self-employed business.

This becomes particularly important if you're both employed and self-employed.

Imagine you have a full-time job that already uses your Personal Allowance.

Then you start earning additional taxable profit from freelance work.

You shouldn't assume the first £12,570 of your freelance profit will also be tax-free.

You don't receive a fresh Personal Allowance for every source of income.

What About National Insurance?

Self-employed people can also have Class 4 National Insurance to pay.

For the 2026/27 tax year, Class 4 National Insurance is generally charged at:

6% on self-employed profits over £12,570 up to £50,270.

2% on profits above £50,270.

The rules around Class 2 National Insurance are different. Depending on your profit, contributions may be treated as paid without you actually making a Class 2 payment, while some people with lower profits can choose to make voluntary contributions.

So don't simply think:

"I'm a basic-rate taxpayer, therefore I only need to save 20%."

Your eventual Self Assessment bill can involve more than Income Tax alone.

Example: £30,000 Self-Employed Profit

Let's keep this deliberately simple.

Imagine you're solely self-employed and make approximately:

£30,000 profit

during the tax year.

Part of that income may be covered by your Personal Allowance.

Income above the allowance may then be subject to Income Tax.

You may also have Class 4 National Insurance to pay.

Your precise bill depends on your circumstances.

That's why putting aside something like 25–30% as you earn can provide a useful buffer rather than waiting until the tax return is completed.

If you've saved too much, the remaining money is still yours.

That's usually a much nicer problem than discovering you're several thousand pounds short in January.

What If I Have a Full-Time Job as Well?

This is where you need to be particularly careful.

Imagine you earn:

£35,000 salary through PAYE

and make another:

£10,000 taxable profit from freelance work.

Your employer is already deducting tax from your salary.

But your PAYE salary also uses some or all of your available Personal Allowance and tax bands.

Your side-hustle profit doesn't start from zero as though your employment didn't exist.

Your overall tax position considers your different sources of taxable income.

Therefore, someone earning £10,000 from a side hustle alongside a £35,000 salary could have a very different tax bill from someone whose only income is £10,000 of self-employed profit.

Should I Save 30% of Every Payment?

For many small sole traders, this is the easiest practical system.

Suppose a client pays you:

£500

You could immediately transfer:

£150

into a separate tax savings account.

That leaves:

£350

outside your tax pot.

Another client pays:

£2,000

Transfer:

£600

again.

You don't have to calculate your exact tax bill every time someone pays you.

You're simply building a buffer throughout the year.

Then periodically review whether the percentage you're saving still makes sense based on your actual profit and other income.

Consider a Separate Tax Account

This is one of the simplest habits a new sole trader can establish.

Have a separate savings pot or account labelled something like:

HMRC TAX — DO NOT SPEND

Every time you pay yourself or receive business income, move your chosen tax provision into that account.

The money remains yours.

But mentally, treat it as unavailable until you know your actual tax liability.

Otherwise, it's extremely easy to look at £8,000 sitting in your current account and assume you have £8,000 available to spend.

You might not.

The January Surprise: Payments on Account

This is something every new sole trader should understand.

Your first significant Self Assessment payment can sometimes be larger than the tax bill you were expecting because HMRC may also require payments on account towards your next tax bill.

Payments on account are advance payments towards your next Self Assessment bill.

There are normally two payments:

31 January

and

31 July

Each is normally half of the previous year's relevant tax bill.

This can make your first January payment feel particularly painful.

A Simple Payments on Account Example

Imagine your Self Assessment calculation results in £4,000 being due and you also fall within the payments-on-account rules.

Your January payment could potentially include:

£4,000 — tax due for the year you've just reported

plus

£2,000 — first payment on account towards the next year.

Total potentially due in January:

£6,000

Then another:

£2,000

could be due in July.

That doesn't mean HMRC has suddenly taxed the same income twice.

The extra payments are being put towards your next tax bill.

But if you weren't expecting them, they can cause a serious cash-flow problem.

That's Why Simply Saving Your Exact Tax Estimate Can Be Risky

Imagine you've carefully calculated that your tax bill should be around £4,000.

You proudly save exactly:

£4,000

Then your Self Assessment calculation tells you that your January payment is considerably higher because a payment on account is also due.

Suddenly you're short.

This is why new sole traders should understand payments on account before their first substantial Self Assessment bill arrives.

What If My Income Changes Every Month?

That's normal.

Self-employed income often looks like:

April: £1,800 May: £3,200 June: £900 July: £4,100

You don't necessarily need to save the same fixed cash amount every month.

Instead, saving a percentage can adapt automatically.

If you have a great month, more goes into the tax pot.

If you have a quiet month, less goes in.

You should still periodically estimate your annual position because your effective tax rate can change as your income grows.

What If My Business Expenses Are High?

This is another reason a blanket percentage isn't perfect.

Suppose two businesses each receive £50,000.

Business A has £5,000 of allowable expenses.

Business B has £25,000 of allowable expenses.

Their taxable profits could be very different.

So while transferring a percentage of money received is an easy cash-management system, your actual tax calculation needs to consider profit and allowable expenses.

What If I'm Earning More Than £50,000?

Don't blindly rely on the 25–30% budgeting idea.

As your overall taxable income rises, part of your income may enter higher tax bands.

Other tax issues can also become relevant depending on your circumstances.

At that point, it's particularly useful to estimate your tax liability properly during the year rather than relying on a generic percentage.

What Should I Do Each Time I Get Paid?

Keep it simple.

1. Record the income.

Know exactly how much your business received.

2. Record your expenses.

Keep evidence of legitimate business costs.

3. Move money into your tax pot.

Don't leave your entire tax provision sitting in your everyday spending account.

4. Review your estimated profit.

Do this periodically rather than waiting until the end of the tax year.

5. Remember payments on account.

Especially if this will be your first substantial Self Assessment bill.

Frequently Asked Questions

Is 30% enough to save for self-employed tax?

It can be a useful budgeting buffer for some basic-rate taxpayers, but it is not a universal rule. Your required amount depends on your profit, other income and circumstances.

Do I need to save tax if I earn less than £12,570?

Don't automatically assume you owe nothing. Your Personal Allowance applies across relevant income, not separately to every job or business. You may also have other tax considerations.

Should I save tax from turnover or profit?

Your actual tax liability is generally based on taxable profit, but some sole traders choose to transfer a percentage of every payment received because it's an easy way to maintain a cash buffer.

I'm employed and self-employed. How much should I save?

Be particularly careful because your employment income may already use your Personal Allowance and part of your tax bands. Your side-hustle profit needs to be considered alongside your other taxable income.

Why is my first Self Assessment payment so high?

Payments on account are a common reason. You may be paying the amount due for the tax year you've reported plus an advance payment towards the following year's liability.

Can I calculate my tax bill before January?

Yes. You don't have to wait until the payment deadline to estimate what you're likely to owe. Keeping your records up to date makes this considerably easier.

Final Thoughts

If you're newly self-employed, don't wait until January to ask:

"Where am I going to find the money for my tax bill?"

Build the habit from your very first payment.

For someone expecting to remain a basic-rate taxpayer, setting aside around 25–30% can be a sensible starting buffer, but it isn't a substitute for calculating your actual tax position.

As your income grows, review the percentage.

And most importantly:

Don't treat everything in your bank account as spendable money.

Some of it may already have HMRC's name on it.

Disclaimer

This article is for general information purposes only and does not constitute tax, legal or financial advice. The 25–30% figure discussed above is a budgeting example, not an HMRC-prescribed rate. Tax rules, rates and individual circumstances vary and can change. Always check current HMRC guidance or consult a qualified UK tax adviser or accountant for advice tailored to your circumstances.

Handle your MTD returns automatically

Snap receipts, log income, submit to HMRC — all from Telegram.

Try TaxBot →