44% of adults in the UK have a second income source with online businesses proving popular, but how do you turn this side hustle into a main income stream?
A side hustle is a name given to a piece of work or job that you get paid for doing, in addition to your main job. It can vary from casual activity such as completing online surveys and reviews, creating content or renting a spare room to more formal employment such as a second job delivering food, manual labour, freelancing or running an online business.
A 2023 study found that 44% of adults in the UK have a second income source, including 76% of Generation Z and 49% of men compared to 40% of women.
57% of people that currently have a side hustle plan to turn this into their full-time source of income in the future.
It is also suggested that 1 in 5 have started a ‘side hustle’ since March 2020 when the covid pandemic started, as a result of having more time to dedicate to hobbies and other activities such as creating hand-embroidered t-shirts or artwork.
While some pursue a side hustle for the money and freedom, others took the opportunity to monetise a passion and turn a hobby into something that can potentially become their main source of income.
From 1st January 2024 in the UK, people earning over £1000 a year from a side hustle such as selling second hand clothing on eBay or Vinted, or renting out a room on Airbnb, must register as self-employed and file a self-assessment tax return with HMRC at the end of the financial year to avoid a penalty charge.
A report by the independent newspaper stated that online platforms will be required to report seller information directly to HMRC – although not until the end of January 2025.
If you regularly sell products online and are earning more than £1,000 through your side hustle, HMRC considers you a business. You will need to register that business with company’s house by the 5th October, after the end of the tax year in which you started the company, and declare any income through a self-assessment tax return in January.
If you’re registered as a sole trader or a business, and you declare your costs and show your profits, only your profits will be liable for the 20% tax.
Registering yourself as a business enables you to claim back against some business expenses. For example, if you earned £1,500 but spent £500 or more on expenses for the business, such as materials, you may not have to pay any tax.
More information can be found on the Gov.uk website.
Maybe your side hustle is selling printed t-shirts. You’re designing the print, ordering the finished t-shirts in bulk to be stored in your home, ordering the packaging materials, and praying there’s no delay with the delivery. You pack the orders and take your fifth trip of the week to the post office. Whilst it’s great that your store is doing so well, the other parts don’t sound so great and there may come a time you don’t have enough space to place larger orders of t-shirts and packing materials so are missing out on potential sales where your best sellers are out of stock.
You can’t make more money unless you make more sales, and you can’t sell what you don’t have.
Here are some of the ways you can help grow your side hustle store into your primary income:
⇒ Keep an eye on your cost of sales and break even point to ensure you are making a profit and not just revenue. If your marketing budget is growing but not resulting in sales, you may need to adjust your strategy. Profit can be reinvested into the business to ensure you can pay any upfront costs needed to grow.
⇒ Research thoroughly before making an order with a supplier. Resources and cashflow are finite as a young business. Ensure you are investing time and money in products that have demand, are not too competitive and can be sourced at a good price. Any reduction in product quality can impact returns and customer loyalty.
⇒ Adopt a growth mindset. Experts are expensive and as a start up or small business you may not be able to afford to take on an agency or consultant right away to do the tasks you see necessary to grow your business. As an entrepreneur, you will need to know about a lot of areas of business from finance to creative skills and everything in between so it’s a good idea to set some non-financial goals as you grow to ensure you have a good footing in the different areas and can adapt around any obstacles.
⇒ Make sure you are compliant and set up correctly. Businesses need to be registered, pay VAT and keep a good record of accounts. As you can see with the above topic of side hustle tax, these regulations can change and can result in penalties if not followed.
⇒ Don’t forget about seasonality. It can take a few months for your marketing to really take effect, if you have a seasonal item, ensure you are marketing it well ahead of time. Equally, it would be prudent to ensure your forecasts and decisions are not based purely on historical data from the order peak such as the Christmas period, when this is unsustainable.