When you need to complete a self assessment tax return: savings interest and side hustle income

If you’ve earned income from savings and side hustles, you may need to file a self assessment tax return with HMRC. This guide explains when to submit a tax return and how to register with HMRC for self assessment.

Savings interest above the personal savings allowance

The Personal Savings Allowance (PSA) allows you to earn a certain amount of interest tax-free each year. The allowance depends on your income tax band:

• Basic rate taxpayers (20%): £1,000 PSA
• Higher rate taxpayers (40%): £500 PSA
• Additional rate taxpayers (45%): £0 PSA

If you earn more interest than your PSA allows, you must declare this additional interest to HMRC. For example, if you’re a basic rate taxpayer and earn £1,200 in savings interest, you’ll need to pay tax on the £200 that exceeds your £1,000 allowance. Interest earned within as ISA is tax-free, regardless of the amount.

Starting savings rate

The starting rate for savings is designed to help lower-income earners keep more of their savings interest tax-free. You can get up to £5,000 of savings interest tax-free, but the exact amount depends on your other income (such as salary, pension, income from property, etc).

If your other income is below £12,570 a year, you get the full £5,000 starting savings rate, plus the £1,000 personal savings allowance. For every £1 you earn above £12,570, you lose £1 of the starting savings rate. You lose the starting savings rate once your other income reaches £17,570.

For example, if you earn £12,000 a year, you can earn up to £6,000 a year in savings interest tax-free, by using the £5,000 starting rate for savings and the personal savings allowance of £1,000.

If you earn a salary of £14,500 a year, you are entitled to £3,070 of the starting savings rate and £1,000 personal savings allowance. This means you can earn up to £4,070 of interest tax-free for the year. As your salary exceeds the personal allowance of £12,570 by £1,930 you lose the equivalent amount of your starting savings rate, reducing it to £3,070.

Side hustle income over £1,000

The trading allowance permits you to earn up to £1,000 from self-employed work or casual income without declaring it to HMRC. However, if your gross income (before expenses) from side activities exceeds £1,000 in a tax year, you must:

1. Register for self assessment with HMRC
2. Keep accurate records of your income and expenses
3. File an annual self assessment tax return
4. Pay any tax due on your profits

This applies to various types of side income, including:

• Online selling
• Freelance work
• Consulting
• Renting out property
• Teaching or tutoring
• Social media influencing

To learn more about the trading allowance follow the link below:

Examples of the Trading Allowance

How to register for self assessment

If you have income from savings and side hustles and need to complete a self assessment tax return:

1. Register with HMRC as soon as possible after the tax year in which you exceeded either allowance
2. The deadline for registration is 5 October following the tax year in which you needed to submit a return
3. You can register online at the HMRC website or by calling their helpline
4. Once registered, you’ll receive a Unique Taxpayer Reference (UTR) number

Check how to register for Self Assessment – GOV.UK

Important deadlines

• Register for self assessment: 5 October
• Paper tax returns: 31 October
• Online tax returns: 31 January
• Pay tax owed: 31 January

Record keeping requirements

You must keep records of:

• All interest earned from savings accounts
• Income from your side activities
• Related expenses and receipts
• Bank statements
• Invoices or sales records

Keep these records for at least 5 years after the tax return deadline.

Penalties for non-compliance

Failing to declare income above these allowances can result in:

• Initial £100 fixed penalty for late filing
• Additional daily penalties for continued delays
• Interest charges on late payments
• Potential tax investigations
• Higher penalties for deliberate non-disclosure

Getting help

If you’re unsure about your tax obligations:

• Use HMRC’s online guidance and tools
• Contact HMRC directly for clarification
• Consider seeking advice from a qualified accountant

Remember, it’s always better to declare income and seek guidance if you’re uncertain, rather than risk penalties for non-disclosure.