Side Hustle Success: Must-Know Tax Saving Tips for New Entrepreneurs

matbriars
Nov 14
4 min read

If you’re considering starting a side hustle — or even a complete career change — you’re far from alone.

More people than ever are choosing flexibility, freedom and passion over traditional employment. In fact, according to the Global Entrepreneurship Monitor (GEM) UK report, 36% of working-age adults are either running a new business or intend to start one within the next three years.

A couple are having fun shaping dough together — Turning passion into profit — building your side hustle takes care, patience, and creativity

But before you dive in, there’s one part that needs to be right from the start: tax.

In 2025, the UK tax landscape has evolved, and knowing the rules can save you thousands — and spare you a lot of headaches.

This guide breaks down exactly what you need to know as a mid-life entrepreneur.

1. Understand the Trading Allowance: £1,000 Tax-Free Income

If you’re testing the waters with a small side hustle, good news:You can earn up to £1,000 a year tax-free through the trading allowance.

This is ideal for:

✔ Selling crafts

✔ Occasional freelancing

✔ Teaching, tutoring or coaching

✔ Reselling items online

But once you go past that £1,000, you’ll need to register with HMRC — which brings us to the next point.

2. Know When You Must Register as Self-Employed

As soon as your gross income from self-employment passes £1,000 in a tax year, you must register for Self Assessment (expected to increase to £3,000 from tax year 2027/28 but yet to be confirmed).

Deadlines that matter:

5 October after the end of the tax year in which you earned over the allowance.
Self Assessment tax return usually due 31 January.

Staying on top of this helps avoid penalties and keeps your new venture stress-free.

3. National Insurance Is Changing — Here’s What It Means for Entrepreneurs

For 2025, changes to National Insurance (NI) may affect your side hustle income:

Class 2 NI (flat weekly rate)

Currently being simplified and phased out for most self-employed people.
Only applies at higher profit levels or in specific cases.

Class 4 NI (percentage of profits)

Kicks in once profits pass the lower threshold (£12,570 for 2024/25).
You’ll want to set money aside each month so you’re not hit with a surprise bill.

If you’re mid-career or thinking about retirement, understanding NI matters because it’s tied to your State Pension. Gaps can reduce your entitlement unless you plan strategically.

4. Don’t Miss Out on Allowable Expenses — They Reduce Your Tax Bill

One of the biggest mistakes new entrepreneurs make is under-claiming expenses.

Typical allowable expenses include:

Home office use
Phone and broadband proportion
Travel for business
Tools, equipment or materials
Professional fees (like accountants)
Marketing
Software and apps
Training relevant to your trade

If you're switching careers or setting up a passion project, tracking expenses properly from day one can dramatically reduce your tax bill.

A man is working from home happily with his dog — Working from home? Don’t forget to claim your expenses — every little bit counts!

5. If You’re Employed and Running a Side Hustle — Watch Your Tax Code

This is where many mid-life entrepreneurs get caught out.

If you have a job and a side business:

Your employer taxes your salary through PAYE
Your side business is taxed separately through Self Assessment
HMRC may adjust your tax code to collect unpaid tax in advance

If your tax code suddenly changes — or your take-home pay drops — it may simply be HMRC trying to pre-collect tax from your side hustle. Understanding this stops unwanted surprises.

6. Planning to Leave Your Job? Your Tax Situation Will Change Overnight

If your side hustle becomes a full-time second career:

You’ll stop paying tax via PAYE
You’ll rely entirely on Self Assessment
You’ll need to budget for tax, NI, and payments on account
Your pension contributions may need review
Your risk exposure changes, so insurance matters more

This transition is one of the biggest financial turning points for people in mid-life careers — and where personalised advice becomes most valuable.

7. Consider Whether You Should Stay a Sole Trader or Go Limited

This decision can save (or cost) you several thousand a year.

Sole Trader is usually best if:

You're testing an idea
You want low admin and low cost
Your profits are modest
You want flexibility

Limited Company often makes sense if:

Your profits exceed £35k–£50k
You want tax efficiency through salary + dividends
You're looking more “professional” for clients
You’re protecting personal assets
You might hire others

Many mid-life entrepreneurs choose to incorporate later — once the idea proves itself.

8. If You’re Using Savings or Inheritance to Fund Your Venture — Get the Tax Right

This is incredibly important!

Using inheritance or savings can be:

✔ A smart way to reduce borrowing

✔ A way to buy equipment, stock or training

✔ A confidence boost to start at speed

But depending on how you invest that money — as capital, a loan to the business, or personal spending — the tax treatment changes significantly.

A quick consultation with an accountant can ensure you’re set up in the most tax-efficient way from day one.

Three individuals are collaborating on a work project — Don’t navigate taxes alone — partner with a qualified accountant and turn numbers into confidence

9. Side-Hustle Apps, Tools and Systems That Make Tax Easy (and Keep You Compliant)

Modern tools can help even non-tech-savvy entrepreneurs stay organised, such as:

QuickBooks or Xero for bookkeeping
HMRC app for tracking tax liabilities
Monzo/Starling/Tide bank accounts for separating income
Dext for receipt scanning

Using the right tools early on saves hours of admin later.

10. The Smartest Tax Tip of All: Don’t Wait Until Next Year to Get Advice

The first year of a side hustle brings big financial questions - a mid-life career shift brings even more.

The right accountant can help you:

minimise tax
choose the right structure
avoid penalties
set up efficient systems
protect your savings
plan for retirement
grow confidently and sustainably

If you're starting a side hustle or planning a second career in 2025, the smartest move you can make is getting guidance tailored to your situation.

At Verifiable Accounts, we help entrepreneurs and career changers like you structure your business, manage your taxes efficiently, and protect your savings — so you can focus on growing your ideas with confidence.