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 an 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:
- Register for self assessment with HMRC
- Keep accurate records of your income and expenses
- File an annual self assessment tax return
- 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:
- Register with HMRC as soon as possible after the tax year in which you exceeded either allowance
- The deadline for registration is 5 October following the tax year for which you need to submit a return
- You can register online at the HMRC website or by calling their helpline
- 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.