How much should I set aside for tax on my side hustle?
Published · Figures are for the 2026–27 tax year
The short answer
If you have a job and are a basic-rate taxpayer, set aside 20% of your side-hustle profit. If you are a higher-rate taxpayer, set aside 40%. If the side hustle is your only income, the first £12,570 of profit is tax-free and you should set aside about 26% of everything above that (20% Income Tax plus 6% National Insurance). In your first year, keep back extra if your bill is likely to be over £1,000, because HMRC will also ask for a payment towards next year.
Why you need to set money aside
When you are employed, tax comes off your pay before you see it. Side-hustle income arrives whole. Nobody deducts anything, and the bill turns up in one lump on 31 January, up to 22 months after you earned the first pound of it.
The fix is to move a slice of every payment into a separate savings account as it comes in. The question is how big that slice should be.
Start with profit, not sales
You pay tax on your profit: what you earned minus either your actual costs or the £1,000 trading allowance, whichever is bigger. You cannot use both.
If you sell £5,000 of stock that cost you £3,000, your profit is £2,000. Setting aside 20% of £5,000 would mean saving £1,000 for a £400 bill.
The rule of thumb
For the 2026–27 tax year in England, Wales and Northern Ireland, set aside this share of your profit:
- Basic-rate taxpayer with a job (total income up to £50,270): 20%
- Higher-rate taxpayer with a job (total income over £50,270): 40%
- Side hustle is your only income: nothing on the first £12,570 of profit, then about 26% (20% Income Tax plus 6% Class 4 National Insurance)
- Profit that takes you over £50,270: 40% Income Tax plus 2% National Insurance on the part above that line
Scotland has its own Income Tax bands, so Scottish taxpayers will need a slightly different figure.
Why most people with a job pay no National Insurance on it
Class 4 National Insurance is worked out on your self-employed profit on its own, not your total income. It only starts once that profit is over £12,570. A side hustle making a few thousand pounds alongside a salary pays Income Tax but no National Insurance.
Two extras to watch
- Student loans. Self Assessment collects repayments on side-hustle income too, based on your combined income for the year. Add 9% for Plan 1, 2, 4 or 5 loans and 6% for a postgraduate loan on income over your plan's threshold.
- The edge of a band. If your salary is just under £50,270, part of your profit may be taxed at 40%. Set aside for the higher rate on anything that pushes you over.
The first-year catch: payments on account
If your Self Assessment bill is more than £1,000, HMRC usually asks for payments on account: two advance payments towards next year, each half of this year's bill.
The first one is due on the same day as your bill. So in your first year, the January payment is roughly one and a half times your tax bill. If you think your bill will be over £1,000, aim to have that much saved by January.
Worked examples
Basic-rate with a job. Leah earns £30,000 as a receptionist and makes £6,000 from nail appointments, with £1,500 of products and kit.
- Profit: £6,000 − £1,500 = £4,500
- Set aside 20%: £900, about 15% of what she takes in
- The bill is under £1,000, so no payments on account
Full-time side hustle. Dev has no other job and makes £20,000 profit from freelance video editing.
- Tax-free: the first £12,570
- Taxed: £20,000 − £12,570 = £7,430 at 26% = £1,931.80
- The bill is over £1,000, so his first January payment is £1,931.80 plus a £965.90 payment on account: £2,897.70, with another £965.90 due on 31 July
Paying through your tax code
If you are employed, owe less than £3,000 and file your return online by 30 December, HMRC can collect the tax through your tax code over the following year instead of in one payment. It is a useful option if January would be tight. You still need the money, it just comes out of your pay a little at a time.
Keeping track
A rule of thumb is a good start, but your real figure depends on your salary, your costs and how the year goes. Hamster is a free Android app that works out your estimated Income Tax and Class 4 National Insurance every time you log a sale or a job, taking your salary into account, and shows it next to what you have already put aside. It uses the rates for England, Wales and Northern Ireland and does not include student loan repayments, so add those on if they apply to you.
Quick answers
- How much should I set aside for tax on my side hustle?
- 20% of your profit if you have a job and are a basic-rate taxpayer, 40% if you are a higher-rate taxpayer. If the side hustle is your only income, nothing on the first £12,570 of profit and about 26% above that.
- Do I set aside tax on my sales or my profit?
- On your profit. That is your sales minus either your actual business costs or the £1,000 trading allowance, whichever is bigger. Setting aside a share of sales is simpler but usually means saving more than you need.
- Do I pay National Insurance on side hustle income if I already have a job?
- Only if your self-employed profit is over £12,570. Class 4 National Insurance is worked out on your self-employed profit alone, so most side hustles alongside a job pay none.
- Why do I need to save extra in my first year?
- If your Self Assessment bill is over £1,000, HMRC usually asks for payments on account. Your first January payment is then this year's bill plus half as much again towards next year.
Sources
This is general information, not personal tax advice. Rules and rates change — check the linked GOV.UK pages or speak to an accountant about your own situation.