When does a side hustle become a real business opportunity?
- 7th February 2023
Many start side hustles to supplement their income, pay off debt, save for a specific goal, or explore a new career path. They can often start as an interest or hobby that grows to become something that can earn extra income. The most important aspect of a side hustle is that it can be done to make money without quitting or leaving your primary job.
During an economic downturn, starting a side hustle can be a good way to generate additional income and is usually a time when this particular type of business experiences growth. Some popular side hustle businesses include: freelancing in a skill or talent you already have; starting an online business selling goods or services, providing home services such as cleaning or pet-sitting, becoming a delivery driver, starting a blog or YouTube channel and monetising it through advertising or sponsorships, buying and reselling items for profit.
It's important to keep in mind that starting a side hustle may require an initial investment of time and money, and success is not guaranteed. Therefore it's essential to do your research and make sure the business idea is viable before investing too much time and money.
Do I need to pay tax on the income from a side hustle?
Testing out a business idea based on a hobby is a great way not only to gauge the feasibility as a business but also to see if the entrepreneurial life is for you. Thanks to the tax free trading allowance introduced by HMRC, the first £1,000 of gross earnings (before expenses) is tax free. You don’t need to even report it as income.
However, should your income be in excess of the tax free allowance then you will need to report this. You will need to register with HMRC for self-assessment and pay tax on any profits gained.
When to turn a side hustle into a business.
When to incorporate a side hustle can depend on various factors such as the type of business, the level of income it generates, and the level of risk involved. Some people may choose to incorporate their side hustle if it starts to generate a significant amount of income, or if it carries a significant level of risk. Incorporating can provide personal liability protection and make it easier to raise capital and secure funding. However, incorporating can also come with additional costs and responsibilities, such as filing annual reports and compliance requirements.
The other thing to consider is whether you actually want to pursue this full time. If this started as a hobby or something fun that you enjoyed doing, would it still be fun if it was full time? Running your side hustle as a full time business sees added responsibilities such as accounting, marketing, administration, employment of staff, business management, sales and profitability.
From side hustle to global success
There are some really famous global brands that started as a side hustle. Apple started in a garage in the early 1970s when the founders built personal computers in their spare time. Etsy started as a side hustle back in 2005, look where that is now. Even Groupon started as a side hustle.
So if you think you're ready to take your side hustle to the next level, there are lots of considerations to think about. Did you know that many accountants offer a free initial consultation where you can discuss your next steps? Here at Forrester Boyd Chartered Accountants, we would be more than happy to chat with you about your ideas. Accountants work with so many different businesses of all sizes so they have experienced everything that you are going through with many before you. They can offer guidance and advice to help you formulate a plan to move forward.
If you would like to discuss your side hustle business and future plans, do get in touch with us for a free no obligation discussion.
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