Speaker 1: This series is brought to you by L& G, helping
Speaker 1: you build a future but a little bit richer.
Iona Bain: Hello and welcome to A Little Bit Richer with me
Iona Bain: Iona Bain, brought to you by Legal & General. Now we're
Iona Bain: back with part two of our tax special with accountant
Iona Bain: Tim Paul. You can go back and have a listen
Iona Bain: to part one if you haven't already had a chance
Iona Bain: to do so. Definitely recommend it but for now let's
Iona Bain: dive in. Tim, are you ready?
Tim Paul: I'm ready.
Iona Bain: Let's go. Let's talk about side-hustles because I get asked
Iona Bain: a lot about whether you should pay tax on your side-
Iona Bain: hustle. What's the answer?
Tim Paul: It depends on how much you earn. So with this the
Tim Paul: key thing that you want to look at is something
Tim Paul: called the trading allowance. And the trading allowance in the UK
Tim Paul: everyone is entitled to earn up to £1, 000 a year
Tim Paul: through side- hustles, separate income outside of what you earn
Tim Paul: from your day- to- day salary and job. And up
Tim Paul: to this amount you don't have to declare the income,
Tim Paul: you don't have to pay any tax on it. Obviously
Tim Paul: when you go above the £1, 000 that's where it gets a
Tim Paul: bit more interesting. At that point you have to start
Tim Paul: declaring it, you have have to register for self- assessment and you
Tim Paul: have to do this within a certain date. So let's
Tim Paul: say you're selling clothes online, on Vinted which a lot
Tim Paul: of people do these days, or Uber driving as a side-
Tim Paul: hustle, if you earn above that £1, 000, let's say the current tax
Tim Paul: year, so the tax year runs from April '25 to
Tim Paul: April '26, if you earn say £ 3, 000, £4,000 in that
Tim Paul: tax year through your side-hustles, you've gone above the trading allowance,
Tim Paul: so what you need to do is register for self-
Tim Paul: assessment by October 5th 2026 and then pay the applicable
Tim Paul: tax on the self- assessment in January of 2027. That's
Tim Paul: essentially how the process works and it will basically be
Tim Paul: added on as additional income to what your salary is.
Tim Paul: So if you earn £40, 000 from your salary and you've earned £ 4,
Tim Paul: 000 from your side- hustle you'll by paying the extra
Tim Paul: tax as in total you've earned £ 44,000 for that tax
Tim Paul: year. So yeah, you'll pay the 20% income tax, the 8% National
Tim Paul: Insurance on that income that you've earned from side- hustles.
Tim Paul: The key thing to remember is that obviously you can
Tim Paul: deduct expenses so any subscriptions fees, travel costs that you've
Tim Paul: incurred, any equipment that you've bought, stationary, even if it's
Tim Paul: something really small like pens and notepads or books, whatever
Tim Paul: it might be that you've used whilst doing the side-
Tim Paul: hustle, you can obviously deduct that as an expense and
Tim Paul: then you get to a figure that will be called
Tim Paul: profit and then you pay the tax on that profit.
Iona Bain: So keep the receipts.
Tim Paul: Keep your receipts people.
Iona Bain: And if anyone's thinking " Do I have to declare this
Iona Bain: really? Will the taxman get to find out about it?"
Iona Bain: what's your advice.
Tim Paul: Well my advice is don't even think about that because
Tim Paul: HMRC receive date from Etsy, from Airbnb, from Uber, from
Tim Paul: all of the online platforms where people commonly earn extra income.
Tim Paul: They get all of the data so they can see
Tim Paul: everything. They can get access to your bank account. No
Tim Paul: matter what it is, if you go above the threshold you unfortunately
Tim Paul: have no choice but to pay the applicable tax.
Iona Bain: Yeah. No hiding place. You've got to come clean. But
Iona Bain: I think there has been this misperception that if you
Iona Bain: earn any money from side-hustles, then you'll have to pay
Iona Bain: tax on it. I think there were quite a lot
Iona Bain: of scary headlines about this when it was reported that
Iona Bain: HMRC would be contacting a lot of theses platforms to
Iona Bain: get that data. But £1, 000 is quite a lot to
Iona Bain: earn over the year especially if you're selling clothes on Vinted or
Iona Bain: Depop for example. A lot of us would be really
Iona Bain: lucky to get to that amount. So it's probably fair
Iona Bain: to say that it's not going to affect everyone who
Iona Bain: has a side- hustle.
Tim Paul: No, exactly not. If you're below that threshold you don't even
Tim Paul: have to think about it. It's just a case of
Tim Paul: tracking what you're earning because you don't want to accidentally
Tim Paul: go above and forget to do it. So it's just
Tim Paul: make sure you're looking at your numbers and if you have to
Tim Paul: pay, you have to pay.
Iona Bain: Exactly. Stay on top of it. Now tax- free childcare
Iona Bain: can be a real help for so many families but
Iona Bain: it can be lost if your income goes past a
Iona Bain: certain level. Can you just talk us through how that works?
Tim Paul: So there's two main benefits. So there's tax- free childcare
Tim Paul: and there's Child Benefit. People confuse the two. We'll go
Tim Paul: through tax- free childcare first. So that is a scheme
Tim Paul: where for every £ 8 you put in for tax- free childcare,
Tim Paul: its an account that you have online the government, you
Tim Paul: then get an extra £ 2 back. So it's a 25% bonus
Tim Paul: essentially. So if you put in £ 80 then you'll get £ 100 back,
Tim Paul: an additional £ 20. That benefit will get lost once you
Tim Paul: or your spouse is earning £100, 000 or more. It's not
Tim Paul: combined, it's each. So if you both earned £ 99, 000
Tim Paul: each you'd still qualify.
Iona Bain: Oh.
Tim Paul: Yeah, the threshold is quite high for tax- free childcare
Tim Paul: and obviously that money that you get, the bonus, can
Tim Paul: be put towards obviously help with costs for raising your
Tim Paul: child or children. Then Child Benefit is a little bit
Tim Paul: more strict. So with Child Benefit, you get £1, 300 roughly
Tim Paul: for your first child for the year, each year for
Tim Paul: your first child, and then additional children you have it
Tim Paul: will be about £ 800, £900 per year that you receive from the
Tim Paul: government, again to help with childcare costs. This gets lost
Tim Paul: or starts to get lost once you hit above £ 60,000.
Tim Paul: Again that's either you or your partner earns £ 60,000 individually.
Tim Paul: Once you go above that threshold you start to lost the
Tim Paul: benefit or the amount of the childcare that you get
Tim Paul: by 1% for every £ 100. Eventually, once you hit £80, 000
Tim Paul: in income you lose the Child Benefit completely and at
Tim Paul: that point you don't get any tax- free income though
Tim Paul: Child Benefit from the government.
Iona Bain: So it's worth being mindful of that especially if you
Iona Bain: are starting to earn a decent income. Very good advice.
Iona Bain: Okay. Let's do a quickfire round on some of the
Iona Bain: tax thresholds. Are you ready?
Tim Paul: I'm ready.
Iona Bain: Great. Personal Allowance on income.
Tim Paul: So 0 to £ 12, 570 you don't pay any Income Tax
Tim Paul: or National Insurance.
Iona Bain: Personal Savings Allowance?
Tim Paul: For basic- rate taxpayers, that is £1, 000 in tax- free
Tim Paul: interest you can earn. For higher- rate taxpayers that's £ 500
Tim Paul: in tax- free interest and then for additional rate taxpayers,
Tim Paul: again when you're earning £ 125, 000 plus, you don't get
Tim Paul: any tax- free interest.
Iona Bain: Interesting to know. Dividend Allowance?
Tim Paul: Yes, so dividends if you are a director of a
Tim Paul: limited company or if you invest in stocks that pay
Tim Paul: dividends, you can earn £ 500 a year tax- free from
Tim Paul: dividends that you don't have to declare. Above that you have
Tim Paul: to declare.
Iona Bain: And Capital Gains Tax Allowance?
Tim Paul: Capital Gains Tax again, if you own shares, stocks, you
Tim Paul: have to pay Capital Gains Tax on the sale, on
Tim Paul: the gain that you make. So if you bought something
Tim Paul: for £ 10,000, you sold it for £20, 000, you then have to pay Capital Gains
Tim Paul: Tax on the gain of the £10, 000 that you make. You get a £3,
Tim Paul: 000 annual allowance so any gains you make that are
Tim Paul: below £ 3000 no tax to pay and you can actually
Tim Paul: transfer that to a spouse to make it £ 6000 in total.
Iona Bain: I think you smashed that.
Tim Paul: Thank you.
Iona Bain: Its almost like you're an expert. So we've just mentioned
Iona Bain: a few more taxes that people might have to think
Iona Bain: about if they're saving and investing. How can we manage
Iona Bain: these to be more tax efficient.
Tim Paul: I thing I talk about all the time, nearly every
Tim Paul: single content I post online is your ISA, Individual Savings
Tim Paul: Allowance. If you don't know what that is, please go
Tim Paul: and research what that is. It will be your best
Tim Paul: friend from now until retiring. So what the allowance is
Tim Paul: is £ 20,000 per tax year that you can invest and
Tim Paul: put into your ISA. There's a few different types of ISA
Tim Paul: as well. If you want to invest, there's a stocks
Tim Paul: and shares ISA. If you just want guaranteed interest like a
Tim Paul: normal savings account but tax- free then you'd put into
Tim Paul: a cash ISA, and if you want to save towards
Tim Paul: a home you'd put it into a lifetime ISA. They are the
Tim Paul: main ones. But it's £ 20,000 a year you can put into
Tim Paul: this ISA, combined across all of them, and all the gains,
Tim Paul: dividends, interest is completely tax- free. It's sheltered so the
Tim Paul: government can't touch it. They can get everything else that
Tim Paul: you earn but they can't get the gains that you
Tim Paul: make from within your ISA. So with the benefit of
Tim Paul: compound interest where you can earn interest year- on- year,
Tim Paul: if you start investing from a young age then by
Tim Paul: the time you reach 65 and retire, you can have
Tim Paul: a huge pot of money saved up and again, all
Tim Paul: of it goes to you, not a penny goes to
Tim Paul: the taxman. So it's a huge lever that we've got
Tim Paul: in order to mitigate tax and actually build wealth for
Tim Paul: ourselves in this country.
Iona Bain: And again, entirely legal.
Tim Paul: Entirely legal.
Iona Bain: And finally, say you own a property, you're renting out
Iona Bain: a room to help bring in a bit of extra
Iona Bain: cash, can you talk us though what Rental Income Tax is?
Tim Paul: Yeah, so rental income is treated slightly differently. So there's
Tim Paul: a scheme called The Rent a Room Scheme which means
Tim Paul: you can essentially earn up to £ 7, 500 per year
Tim Paul: from rental income by renting out a spare room in
Tim Paul: your house and essentially that is all tax- free. So
Tim Paul: regardless of whether, so you've got a side- hustle that
Tim Paul: you've already earned £1, 000 or you've got dividends of £ 500,
Tim Paul: it's a separate allowance. So regardless of the other income,
Tim Paul: regardless of your salary or tax band, you get that £7, 500
Tim Paul: allowance you can earn from renting out a room and
Tim Paul: only once you go above that do you then have
Tim Paul: to do the self- assessment, declaring the income above that
Tim Paul: amount. But that's quite a good allowance that a lot
Tim Paul: of people can make use of but obviously only if
Tim Paul: you've got the spare room.
Iona Bain: Got it. And what if you think you might have underpaid
Iona Bain: tax? How would you go about declaring that?
Tim Paul: If you are thinking that you've under- declared or underpaid
Tim Paul: via self- assessment you've been earning from a side- hustle, that
Tim Paul: will be though your self- assessment so you'll need to go online,
Tim Paul: look up your self- assessment and make an adjustment or
Tim Paul: declare the correct amount. Best thing to do with that
Tim Paul: is to speak to an accountant because they can obviously
Tim Paul: guide you though the process and fill out the form
Tim Paul: for you. If it's through your employment you will always
Tim Paul: get a letter in the post if you've underpaid your
Tim Paul: tax so that will tell you how much you've underpaid
Tim Paul: by, how much you need to pay, and you'll have
Tim Paul: a link to where to go online to then pay
Tim Paul: that. So yeah, there's not really anything that you need
Tim Paul: to do as such, it's really only if you think
Tim Paul: that you've overpaid, then you can go online and look that
Tim Paul: up and see if you're due a rebate. But if you've underpaid, then
Tim Paul: they will make sure that they get the money that they're owed.
Iona Bain: Yeah, it's something that you really do need to pay attention to and
Iona Bain: not just hope will go away because yeah, you own
Iona Bain: that money and it needs to be paid back.
Tim Paul: Yes.
Iona Bain: So, before I let you go, what are your three quick
Iona Bain: wins for people that can help them ensure that they're
Iona Bain: not paying any more tax than they need to?
Tim Paul: The first thing I would say is checking your tax
Tim Paul: code. So for the majority of people this should be
Tim Paul: 1257L to reflect their personal allowance. If your code on
Tim Paul: your payslip is anything other that 1257L and you don't
Tim Paul: know why, then immediately you want to contact your employer
Tim Paul: and get that sorted out. That would be the first
Tim Paul: thing. The second thing I would say is there's a
Tim Paul: government app now. HMRC have an app. The government have
Tim Paul: an app. Download both because what you can do is you can go
Tim Paul: on the app and you can actually put in your
Tim Paul: details and then it can tell you what benefits and
Tim Paul: allowances you're entitled to: childcare, Child Benefit, Marriage Allowance, those
Tim Paul: kinds of things. So it's actually a very, very good
Tim Paul: app and it does give you all the information that
Tim Paul: you need: your National Insurance contributions, how much tax you're
Tim Paul: paying, your self- assessment record, even your National Insurance Number,
Tim Paul: everything like that. So that would be the second thing
Tim Paul: to see what you can get. Then the third thing is
Tim Paul: the pensions point. Get your pension sorted. If you don't
Tim Paul: know what pots you've got where, or if you don't
Tim Paul: know how much you're contributing, if you don't know how
Tim Paul: much your employer's contributing, find that out. Find out what
Tim Paul: the pension's being invested into and make sure that you've
Tim Paul: got that sorted because that is the quickest win in
Tim Paul: order to make sure that you're not overpaying on your taxes.
Iona Bain: Well, we're all singing from the same hymn sheet there.
Iona Bain: Here, here. That's all fantastic advice Tim. Thank you very much.
Tim Paul: Thank you.
Iona Bain: Well, we hope you now feel just a wee bit
Iona Bain: more enlightened on ways to help your finances. If this
Iona Bain: episode has sparked a conversation you want to have with
Iona Bain: friends or family, I would love it if you could
Iona Bain: share the podcast and help others get a little bit
Iona Bain: richer too. Next time, Laura Ann Moore will be here
Iona Bain: to show us how we can gamify our finances with
Iona Bain: lots of great hacks that might make saving, dare I
Iona Bain: say it? fun. This podcast is brought to you by L&
Iona Bain: G. You can keep up with the show on YouTube, TikTok and Instagram @
Iona Bain: Legal & General. And if you have a question or a
Iona Bain: topic that you would like answered on the show, then
Iona Bain: please do get in touch on our socials. We would
Iona Bain: absolutely love to hear from you. Until next time, see
Iona Bain: you soon.