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From Side hustles To Childcare. Tax-Free Hacks: Part Two · A Little Bit Richer

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  Speaker 1: This series is brought to you by L& G, helping
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  Speaker 1: you build a future but a little bit richer.
• 0:06
  Iona Bain: Hello and welcome to A Little Bit Richer with me
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  Iona Bain: Iona Bain, brought to you by Legal & General. Now we're
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  Iona Bain: back with part two of our tax special with accountant
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  Iona Bain: Tim Paul. You can go back and have a listen
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  Iona Bain: to part one if you haven't already had a chance
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  Iona Bain: to do so. Definitely recommend it but for now let's
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  Iona Bain: dive in. Tim, are you ready?
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  Tim Paul: I'm ready.
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  Iona Bain: Let's go. Let's talk about side-hustles because I get asked
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  Iona Bain: a lot about whether you should pay tax on your side-
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  Iona Bain: hustle. What's the answer?
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  Tim Paul: It depends on how much you earn. So with this the
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  Tim Paul: key thing that you want to look at is something
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  Tim Paul: called the trading allowance. And the trading allowance in the UK
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  Tim Paul: everyone is entitled to earn up to £1, 000 a year
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  Tim Paul: through side- hustles, separate income outside of what you earn
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  Tim Paul: from your day- to- day salary and job. And up
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  Tim Paul: to this amount you don't have to declare the income,
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  Tim Paul: you don't have to pay any tax on it. Obviously
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  Tim Paul: when you go above the £1, 000 that's where it gets a
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  Tim Paul: bit more interesting. At that point you have to start
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  Tim Paul: declaring it, you have have to register for self- assessment and you
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  Tim Paul: have to do this within a certain date. So let's
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  Tim Paul: say you're selling clothes online, on Vinted which a lot
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  Tim Paul: of people do these days, or Uber driving as a side-
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  Tim Paul: hustle, if you earn above that £1, 000, let's say the current tax
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  Tim Paul: year, so the tax year runs from April '25 to
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  Tim Paul: April '26, if you earn say £ 3, 000, £4,000 in that
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  Tim Paul: tax year through your side-hustles, you've gone above the trading allowance,
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  Tim Paul: so what you need to do is register for self-
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  Tim Paul: assessment by October 5th 2026 and then pay the applicable
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  Tim Paul: tax on the self- assessment in January of 2027. That's
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  Tim Paul: essentially how the process works and it will basically be
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  Tim Paul: added on as additional income to what your salary is.
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  Tim Paul: So if you earn £40, 000 from your salary and you've earned £ 4,
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  Tim Paul: 000 from your side- hustle you'll by paying the extra
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  Tim Paul: tax as in total you've earned £ 44,000 for that tax
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  Tim Paul: year. So yeah, you'll pay the 20% income tax, the 8% National
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  Tim Paul: Insurance on that income that you've earned from side- hustles.
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  Tim Paul: The key thing to remember is that obviously you can
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  Tim Paul: deduct expenses so any subscriptions fees, travel costs that you've
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  Tim Paul: incurred, any equipment that you've bought, stationary, even if it's
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  Tim Paul: something really small like pens and notepads or books, whatever
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  Tim Paul: it might be that you've used whilst doing the side-
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  Tim Paul: hustle, you can obviously deduct that as an expense and
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  Tim Paul: then you get to a figure that will be called
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  Tim Paul: profit and then you pay the tax on that profit.
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  Iona Bain: So keep the receipts.
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  Tim Paul: Keep your receipts people.
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  Iona Bain: And if anyone's thinking " Do I have to declare this
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  Iona Bain: really? Will the taxman get to find out about it?"
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  Iona Bain: what's your advice.
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  Tim Paul: Well my advice is don't even think about that because
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  Tim Paul: HMRC receive date from Etsy, from Airbnb, from Uber, from
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  Tim Paul: all of the online platforms where people commonly earn extra income.
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  Tim Paul: They get all of the data so they can see
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  Tim Paul: everything. They can get access to your bank account. No
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  Tim Paul: matter what it is, if you go above the threshold you unfortunately
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  Tim Paul: have no choice but to pay the applicable tax.
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  Iona Bain: Yeah. No hiding place. You've got to come clean. But
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  Iona Bain: I think there has been this misperception that if you
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  Iona Bain: earn any money from side-hustles, then you'll have to pay
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  Iona Bain: tax on it. I think there were quite a lot
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  Iona Bain: of scary headlines about this when it was reported that
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  Iona Bain: HMRC would be contacting a lot of theses platforms to
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  Iona Bain: get that data. But £1, 000 is quite a lot to
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  Iona Bain: earn over the year especially if you're selling clothes on Vinted or
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  Iona Bain: Depop for example. A lot of us would be really
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  Iona Bain: lucky to get to that amount. So it's probably fair
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  Iona Bain: to say that it's not going to affect everyone who
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  Iona Bain: has a side- hustle.
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  Tim Paul: No, exactly not. If you're below that threshold you don't even
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  Tim Paul: have to think about it. It's just a case of
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  Tim Paul: tracking what you're earning because you don't want to accidentally
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  Tim Paul: go above and forget to do it. So it's just
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  Tim Paul: make sure you're looking at your numbers and if you have to
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  Tim Paul: pay, you have to pay.
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  Iona Bain: Exactly. Stay on top of it. Now tax- free childcare
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  Iona Bain: can be a real help for so many families but
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  Iona Bain: it can be lost if your income goes past a
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  Iona Bain: certain level. Can you just talk us through how that works?
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  Tim Paul: So there's two main benefits. So there's tax- free childcare
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  Tim Paul: and there's Child Benefit. People confuse the two. We'll go
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  Tim Paul: through tax- free childcare first. So that is a scheme
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  Tim Paul: where for every £ 8 you put in for tax- free childcare,
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  Tim Paul: its an account that you have online the government, you
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  Tim Paul: then get an extra £ 2 back. So it's a 25% bonus
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  Tim Paul: essentially. So if you put in £ 80 then you'll get £ 100 back,
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  Tim Paul: an additional £ 20. That benefit will get lost once you
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  Tim Paul: or your spouse is earning £100, 000 or more. It's not
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  Tim Paul: combined, it's each. So if you both earned £ 99, 000
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  Tim Paul: each you'd still qualify.
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  Iona Bain: Oh.
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  Tim Paul: Yeah, the threshold is quite high for tax- free childcare
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  Tim Paul: and obviously that money that you get, the bonus, can
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  Tim Paul: be put towards obviously help with costs for raising your
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  Tim Paul: child or children. Then Child Benefit is a little bit
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  Tim Paul: more strict. So with Child Benefit, you get £1, 300 roughly
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  Tim Paul: for your first child for the year, each year for
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  Tim Paul: your first child, and then additional children you have it
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  Tim Paul: will be about £ 800, £900 per year that you receive from the
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  Tim Paul: government, again to help with childcare costs. This gets lost
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  Tim Paul: or starts to get lost once you hit above £ 60,000.
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  Tim Paul: Again that's either you or your partner earns £ 60,000 individually.
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  Tim Paul: Once you go above that threshold you start to lost the
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  Tim Paul: benefit or the amount of the childcare that you get
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  Tim Paul: by 1% for every £ 100. Eventually, once you hit £80, 000
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  Tim Paul: in income you lose the Child Benefit completely and at
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  Tim Paul: that point you don't get any tax- free income though
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  Tim Paul: Child Benefit from the government.
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  Iona Bain: So it's worth being mindful of that especially if you
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  Iona Bain: are starting to earn a decent income. Very good advice.
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  Iona Bain: Okay. Let's do a quickfire round on some of the
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  Iona Bain: tax thresholds. Are you ready?
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  Tim Paul: I'm ready.
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  Iona Bain: Great. Personal Allowance on income.
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  Tim Paul: So 0 to £ 12, 570 you don't pay any Income Tax
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  Tim Paul: or National Insurance.
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  Iona Bain: Personal Savings Allowance?
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  Tim Paul: For basic- rate taxpayers, that is £1, 000 in tax- free
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  Tim Paul: interest you can earn. For higher- rate taxpayers that's £ 500
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  Tim Paul: in tax- free interest and then for additional rate taxpayers,
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  Tim Paul: again when you're earning £ 125, 000 plus, you don't get
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  Tim Paul: any tax- free interest.
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  Iona Bain: Interesting to know. Dividend Allowance?
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  Tim Paul: Yes, so dividends if you are a director of a
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  Tim Paul: limited company or if you invest in stocks that pay
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  Tim Paul: dividends, you can earn £ 500 a year tax- free from
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  Tim Paul: dividends that you don't have to declare. Above that you have
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  Tim Paul: to declare.
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  Iona Bain: And Capital Gains Tax Allowance?
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  Tim Paul: Capital Gains Tax again, if you own shares, stocks, you
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  Tim Paul: have to pay Capital Gains Tax on the sale, on
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  Tim Paul: the gain that you make. So if you bought something
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  Tim Paul: for £ 10,000, you sold it for £20, 000, you then have to pay Capital Gains
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  Tim Paul: Tax on the gain of the £10, 000 that you make. You get a £3,
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  Tim Paul: 000 annual allowance so any gains you make that are
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  Tim Paul: below £ 3000 no tax to pay and you can actually
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  Tim Paul: transfer that to a spouse to make it £ 6000 in total.
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  Iona Bain: I think you smashed that.
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  Tim Paul: Thank you.
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  Iona Bain: Its almost like you're an expert. So we've just mentioned
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  Iona Bain: a few more taxes that people might have to think
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  Iona Bain: about if they're saving and investing. How can we manage
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  Iona Bain: these to be more tax efficient.
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  Tim Paul: I thing I talk about all the time, nearly every
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  Tim Paul: single content I post online is your ISA, Individual Savings
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  Tim Paul: Allowance. If you don't know what that is, please go
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  Tim Paul: and research what that is. It will be your best
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  Tim Paul: friend from now until retiring. So what the allowance is
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  Tim Paul: is £ 20,000 per tax year that you can invest and
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  Tim Paul: put into your ISA. There's a few different types of ISA
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  Tim Paul: as well. If you want to invest, there's a stocks
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  Tim Paul: and shares ISA. If you just want guaranteed interest like a
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  Tim Paul: normal savings account but tax- free then you'd put into
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  Tim Paul: a cash ISA, and if you want to save towards
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  Tim Paul: a home you'd put it into a lifetime ISA. They are the
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  Tim Paul: main ones. But it's £ 20,000 a year you can put into
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  Tim Paul: this ISA, combined across all of them, and all the gains,
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  Tim Paul: dividends, interest is completely tax- free. It's sheltered so the
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  Tim Paul: government can't touch it. They can get everything else that
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  Tim Paul: you earn but they can't get the gains that you
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  Tim Paul: make from within your ISA. So with the benefit of
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  Tim Paul: compound interest where you can earn interest year- on- year,
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  Tim Paul: if you start investing from a young age then by
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  Tim Paul: the time you reach 65 and retire, you can have
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  Tim Paul: a huge pot of money saved up and again, all
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  Tim Paul: of it goes to you, not a penny goes to
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  Tim Paul: the taxman. So it's a huge lever that we've got
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  Tim Paul: in order to mitigate tax and actually build wealth for
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  Tim Paul: ourselves in this country.
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  Iona Bain: And again, entirely legal.
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  Tim Paul: Entirely legal.
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  Iona Bain: And finally, say you own a property, you're renting out
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  Iona Bain: a room to help bring in a bit of extra
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  Iona Bain: cash, can you talk us though what Rental Income Tax is?
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  Tim Paul: Yeah, so rental income is treated slightly differently. So there's
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  Tim Paul: a scheme called The Rent a Room Scheme which means
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  Tim Paul: you can essentially earn up to £ 7, 500 per year
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  Tim Paul: from rental income by renting out a spare room in
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  Tim Paul: your house and essentially that is all tax- free. So
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  Tim Paul: regardless of whether, so you've got a side- hustle that
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  Tim Paul: you've already earned £1, 000 or you've got dividends of £ 500,
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  Tim Paul: it's a separate allowance. So regardless of the other income,
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  Tim Paul: regardless of your salary or tax band, you get that £7, 500
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  Tim Paul: allowance you can earn from renting out a room and
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  Tim Paul: only once you go above that do you then have
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  Tim Paul: to do the self- assessment, declaring the income above that
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  Tim Paul: amount. But that's quite a good allowance that a lot
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  Tim Paul: of people can make use of but obviously only if
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  Tim Paul: you've got the spare room.
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  Iona Bain: Got it. And what if you think you might have underpaid
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  Iona Bain: tax? How would you go about declaring that?
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  Tim Paul: If you are thinking that you've under- declared or underpaid
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  Tim Paul: via self- assessment you've been earning from a side- hustle, that
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  Tim Paul: will be though your self- assessment so you'll need to go online,
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  Tim Paul: look up your self- assessment and make an adjustment or
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  Tim Paul: declare the correct amount. Best thing to do with that
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  Tim Paul: is to speak to an accountant because they can obviously
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  Tim Paul: guide you though the process and fill out the form
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  Tim Paul: for you. If it's through your employment you will always
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  Tim Paul: get a letter in the post if you've underpaid your
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  Tim Paul: tax so that will tell you how much you've underpaid
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  Tim Paul: by, how much you need to pay, and you'll have
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  Tim Paul: a link to where to go online to then pay
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  Tim Paul: that. So yeah, there's not really anything that you need
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  Tim Paul: to do as such, it's really only if you think
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  Tim Paul: that you've overpaid, then you can go online and look that
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  Tim Paul: up and see if you're due a rebate. But if you've underpaid, then
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  Tim Paul: they will make sure that they get the money that they're owed.
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  Iona Bain: Yeah, it's something that you really do need to pay attention to and
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  Iona Bain: not just hope will go away because yeah, you own
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  Iona Bain: that money and it needs to be paid back.
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  Tim Paul: Yes.
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  Iona Bain: So, before I let you go, what are your three quick
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  Iona Bain: wins for people that can help them ensure that they're
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  Iona Bain: not paying any more tax than they need to?
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  Tim Paul: The first thing I would say is checking your tax
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  Tim Paul: code. So for the majority of people this should be
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  Tim Paul: 1257L to reflect their personal allowance. If your code on
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  Tim Paul: your payslip is anything other that 1257L and you don't
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  Tim Paul: know why, then immediately you want to contact your employer
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  Tim Paul: and get that sorted out. That would be the first
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  Tim Paul: thing. The second thing I would say is there's a
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  Tim Paul: government app now. HMRC have an app. The government have
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  Tim Paul: an app. Download both because what you can do is you can go
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  Tim Paul: on the app and you can actually put in your
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  Tim Paul: details and then it can tell you what benefits and
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  Tim Paul: allowances you're entitled to: childcare, Child Benefit, Marriage Allowance, those
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  Tim Paul: kinds of things. So it's actually a very, very good
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  Tim Paul: app and it does give you all the information that
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  Tim Paul: you need: your National Insurance contributions, how much tax you're
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  Tim Paul: paying, your self- assessment record, even your National Insurance Number,
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  Tim Paul: everything like that. So that would be the second thing
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  Tim Paul: to see what you can get. Then the third thing is
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  Tim Paul: the pensions point. Get your pension sorted. If you don't
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  Tim Paul: know what pots you've got where, or if you don't
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  Tim Paul: know how much you're contributing, if you don't know how
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  Tim Paul: much your employer's contributing, find that out. Find out what
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  Tim Paul: the pension's being invested into and make sure that you've
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  Tim Paul: got that sorted because that is the quickest win in
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  Tim Paul: order to make sure that you're not overpaying on your taxes.
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  Iona Bain: Well, we're all singing from the same hymn sheet there.
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  Iona Bain: Here, here. That's all fantastic advice Tim. Thank you very much.
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  Tim Paul: Thank you.
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  Iona Bain: Well, we hope you now feel just a wee bit
• 11:46
  Iona Bain: more enlightened on ways to help your finances. If this
• 11:48
  Iona Bain: episode has sparked a conversation you want to have with
• 11:51
  Iona Bain: friends or family, I would love it if you could
• 11:53
  Iona Bain: share the podcast and help others get a little bit
• 11:56
  Iona Bain: richer too. Next time, Laura Ann Moore will be here
• 11:59
  Iona Bain: to show us how we can gamify our finances with
• 12:02
  Iona Bain: lots of great hacks that might make saving, dare I
• 12:06
  Iona Bain: say it? fun. This podcast is brought to you by L&
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• 12:17
  Iona Bain: topic that you would like answered on the show, then
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• 12:23
  Iona Bain: absolutely love to hear from you. Until next time, see
• 12:26
  Iona Bain: you soon.