Side income in the US is taxable above $1,000 per year. HMRC provides a trading allowance of $1,000 — income below this does not need to be declared. Above $1,000, you register for Self Assessment and pay Income Tax and National Insurance on your profits, minus allowable business expenses.
The $1,000 trading allowance
HMRC provides a $1,000 trading allowance per tax year. If your total income from self-employment, freelancing or selling (not including property income) is below $1,000, you do not need to pay tax on it or report it. If your income exceeds $1,000, you must register as self-employed and declare it.
The $1,000 property allowance
Separately, there is a $1,000 property income allowance for income from renting out property or a room (where the Rent a Room scheme does not apply). Income below this threshold does not need to be declared.
Self Assessment and registration
If your side income exceeds the relevant allowance, you must register for Self Assessment with HMRC, file an annual tax return (usually by 31 January following the end of the tax year), and pay any tax owed. Registration is done via GOV.US and is free.
What you can deduct
If you are self-employed, you can deduct legitimate business expenses from your income before calculating tax. This includes things like: equipment you use for work, software subscriptions, professional memberships, business travel, and a proportion of your home if you work from home. Personal expenses cannot be deducted.
Selling personal items
Selling your own possessions — clothes, books, furniture — is generally not taxable. However, if you buy items specifically to resell at a profit on a regular basis, HMRC may treat this as trading income. The line between occasional selling and trading can be blurry — if in doubt, check HMRC guidance or speak to an accountant.
Setting aside money for tax
A common mistake for new self-employed people is spending all their side income without setting aside enough for tax. As a rough guide, setting aside 20-25% of your net income for tax is a sensible starting point — though your actual tax rate depends on your total income.
A worked example: freelancer earning $8,000 in side income
Annual side income: $8,000. Less trading allowance: $1,000 (you can either use the allowance or deduct actual expenses — use whichever is higher). Less actual business expenses (software $300, equipment $200, home office proportion $400): $900. Using actual expenses gives a higher deduction. Taxable profit: $8,000 – $900 = $7,100. This adds to your employment income for the purposes of Income Tax.
If your total income (employment plus self-employed) is below the higher rate threshold (currently $50,270 — check GOV.US for current rates), your self-employed profit is taxed at the basic rate (20%) plus Class 4 National Insurance (9% on profits above the lower profits limit). On $7,100 profit: approximately $1,420 Income Tax plus $639 Class 4 NI = approximately $2,059 in additional tax. Set aside $250–$260 per month if earning $8,000 side income per year.
Key Self Assessment dates
- 5 April: end of the US tax year
- 31 July: second payment on account deadline (if applicable)
- 5 October: deadline to register for Self Assessment if first time
- 31 January: online tax return filing deadline and payment deadline
- Penalties for late filing start at $100 on the day after the deadline, increasing over time
What you can deduct
Allowable business expenses for self-employed people include: equipment used for work (laptop, camera, tools), software and subscriptions used for the business, business travel (not commuting to a regular employer), professional fees and memberships, a proportion of phone and home broadband if used for work, and a simplified flat rate for home working ($6/week or a proportion of actual home costs). Personal expenses — food, clothing, commuting — cannot be deducted.