When do University students need to pay taxes on their part-time jobs and side hustles?
With the rise in the popularity of young entrepreneurs, influencers, and the high cost of living, more university students are turning to innovative means to boost their income. A study by National Student Money found that 36% of students in 2023 had started a side hustle alongside their studies to support themselves. Whilst many students still choose to take on more traditional forms of part-time work alongside their studies such as working in local bars, cafes and retail shops, independent side hustles are certainly growing in popularity.
These ventures such as dog walking, selling items on platforms like Vinted, or tutoring other students, can be a great way to earn extra cash and live more comfortably throughout university. Often you’ll be paid cash in hand, or directly into your bank account, but you need to understand that these side hustles are considered as earnings and will come with tax responsibilities. Here’s what you need to know about paying taxes on side gigs and part-time work:
Understanding Tax Obligations Based on Employment Status
When it comes to students working, taxes are not the first thing that springs to mind, especially if your earnings are modest. However, it is important to be aware that any income earned above a certain threshold must be declared to HMRC. This applies whether you are earning in a traditional job through an employer or have started your own freelance gig.
- If you’re employed through a PAYE system, tax and national insurance (NI) is automatically deducted from your pay by your employer before you receive it.
- If you’re self-employed, you’ll need to declare your earnings directly to HMRC via a self-assessment tax return. Being self-employed can include being a Deliveroo driver or even doing some pet sitting. It will cover anything where you’re receiving payment without tax being deducted first.
What is the Personal Allowance for University Students?
In the UK, everyone is entitled to a personal allowance, which is the amount of income you can earn before paying tax. For the 2023/2024 tax year, this allowance is currently set at £12,570. If your total income exceeds this amount you’ll need to pay income tax and national insurance.
Side Hustles and Self-Employment Income: If you’re running a small business alongside your studies such as tutoring, dog walking or selling your art online and earning more than £1,000 you must register as self-employed with HM Revenue and Customs (HMRC) and file a self-assessment tax return each year. This applies even if no tax is due as you are earning under your personal threshold of £12,570.
When do students need to pay National Insurance (NICs)? Everyone in the UK over 16 must pay NICs. There is an exception If you earn less than £123 a week you do not need to pay NICs, however, if you start to earn more than £242 a week or exceed £12,570 a year you will need to pay. If you are employed your employer will deduct this automatically from your payslip, alternatively, if you are self-employed you must submit a tax return to declare to HMRC the tax owed. The rate of NICs you pay will be calculated on your employment type and level of earnings.
What is the trading allowance for side hustles?
If you’re selling clothes, books, or other items on platforms like Vinted, and earning under £1,000 per year you can use the full relief of the trading allowance and not have to register with HMRC for self-assessment or pay any tax on those earnings. However, it’s essential to distinguish between occasional selling as a hobby and running a business as a side hustle. Selling your old clothes occasionally when they are no longer wanted or when you have a clear out isn’t typically taxable and would be considered more of a hobby if earnings were minimal and under £1,000.
However, if you’re buying items to sell them for profit or instance being regularly paid for tutoring others ie, a side hustle, HMRC may classify this as trading, this depends if you are earning over the trading allowance. If you are earning more than this, you will need to register for self-assessment with HM Revenue and Customs (HMRC) and pay tax on earnings that exceed the personal allowance.
What if I have a part-time job alongside my side hustle?
Many students balance a part-time job alongside a side hustle. The trading allowance and the personal allowance operate independently from each other so if you are at your personal threshold (currently £12,570 for the 2024/2025 tax year), but still are earning over the trading allowance there is still a tax obligation for you to pay on the portion that exceeds £1,000.
- Example: If you earn £12,570 from a part-time job and £2,000 from a side hustle, only the £1,000 above the trading allowance is taxable. As a basic-rate taxpayer, you’d owe £200 in tax and must complete a self-assessment tax return to report this.
If you are working two part time jobs you may also be overpaying in National insurance and may need to inform HMRC.
How to Claim a Tax Refund for Seasonal Work
Many students take up seasonal work during summer or Christmas breaks. If your annual income from seasonal work and your side hustle remains below the personal allowance, you won’t need to pay tax. However, if taxes were deducted automatically, you might be eligible for a refund.
- Example: If you earned £3,000 from a summer job and that was your only income for the year, you can claim back any tax that was deducted since your total income is under the personal threshold. HMRC’s student tax calculator can help you check if you’re eligible to claim a refund.
If you combine seasonal work with a side hustle that generates over £1,000, the trading allowance may apply separately. Keep track of your earnings from both sources to ensure you meet any tax obligations.
Where to Find Help with Student Taxes and Side Hustles
No matter the type of side hustle you have, keeping accurate records is essential, saving receipts, and logging all income. This will help when filing your self-assessment tax return and with the efficiency of running your side hustle.
If you are feeling overwhelmed by the idea of managing taxes remember there are numerous resources available including HMRC’s website and your student union may be able to offer additional support. If you are unsure about your obligations, we encourage students to seek professional advice.
Featured Photo by Marvin Meyer on Unsplash.
