Side hustle made a loss in first year

sleepysunrise

Hi all.

I have a side hustle (alongside a full time PAYE job) that I started in September/October 2024. Between Oct 2024-Mar 2025 I made around £1,900 so I know I need to now reigster the business. However, my set up costs, training, and expenses were around £4,500 so I am at a net loss. I have a few main questions:

- Will I still pay tax on my £1,900 earnings?
- Does the £1,000 "side hustle tax relief" apply here or is that in place of offsetting any expenses?
- And can I carry forward the loss into the next year of trading?

Additionally, I never anticipated making over £1,000 to begin with as this was something that accidentally turned into a business, so my first few months of accounts are a bit hazy... I can make a solid estimate of what I earnt in the first months but how essential is it that I have the exact records? (Obviously now I keep track of everything.)

Thank you in advance! 

- a total newbie

sgthammer

In general, assuming £4500 costs minus £1900 earnings, that's a £2600 loss to offset against your other income, provided you tick the box that says "Cash basis" (actual money in and out of the business during the tax year) rather than opting for "traditional accounting" (where you have to start tracking depreciation and spreading certain costs over multiple years, which makes things more complicated). 

BUT, be careful of any special rules affecting your particular business where some costs are excluded or only partially allowable.

You don't have to produce invoices and receipts for every transaction unless you're audited, which is pretty unlikely, and even then you're probably fine if you can point to relevant entries on bank statements and the like. Year 1 is often a bit scrappy.

The £1000 Trading Allowance is explicitly an option to avoid having to submit detailed figures for piddling amounts. If you're running at a substantial loss you're better off saying so because yes, you can carry that forward - for three years if memory serves, but it might be longer. Hopefully you'll be in the black by then anyway.

SVaz

Training for a new skill is Not an allowable expense when becoming self employed,  further training IS. 
For example, I couldn’t claim the £8k I spent on training to become a Gas engineer ( I was already a qualified mechanical and electrical engineer)  but I could and can claim for any other course I do pertaining to my gas qualifications. 

As for the rest,  yes you should have kept full records but it’s vanishingly rare for them to check. 

You can either claim a tax refund to offset your losses or carry them forwards to offset your next tax bill or it might come back via paye as you are still employed. 

My first year saw £5k of loss due to pre trading costs of buying a van and tools / liability insurance etc.  and I requested a refund.  

LITRG

Hi sleepysunrise
We have information on our website explaining the trading allowance (https://www.litrg.org.uk/working/self-employment/trading-allowance), how losses work ( https://www.litrg.org.uk/working/self-employment/calculating-self-employed-profits/trading-losses) and a self-employment tax guide which covers keeping business records and registering for self assessment (https://www.litrg.org.uk/working/self-employment/self-employment-guide) . Hope you find this guidance  helpful, 

MyRealNameToo

sleepysunrise said:

Hi all.

I have a side hustle (alongside a full time PAYE job) that I started in September/October 2024. Between Oct 2024-Mar 2025 I made around £1,900 so I know I need to now reigster the business. However, my set up costs, training, and expenses were around £4,500 so I am at a net loss. I have a few main questions:

- Will I still pay tax on my £1,900 earnings?
- Does the £1,000 "side hustle tax relief" apply here or is that in place of offsetting any expenses?
- And can I carry forward the loss into the next year of trading?

Additionally, I never anticipated making over £1,000 to begin with as this was something that accidentally turned into a business, so my first few months of accounts are a bit hazy... I can make a solid estimate of what I earnt in the first months but how essential is it that I have the exact records? (Obviously now I keep track of everything.)

Thank you in advance! 

- a total newbie

You pay tax on profit not revenue
You can claim either expenses or £1k relief not both
Assuming you are doing cash accounting, yes

It was a business as soon as you intended to make £1, you just dont have to register as self employed until you hit £1k of revenue as below that there will never be any tax to pay given the £1k relief 

As others have said, training is a complex area and often cannot be included as legitimate business expenses. 

sgthammer said:

In general, assuming £4500 costs minus £1900 earnings, that's a £2600 loss to offset against your other income, provided you tick the box that says "Cash basis" (actual money in and out of the business during the tax year) rather than opting for "traditional accounting" (where you have to start tracking depreciation and spreading certain costs over multiple years, which makes things more complicated). 

You can't use a cash accounting loss against other income sources, or certainly couldn't last time I checked. 

Cash accounting isnt "real", I start my business at the end of the financial year, I but 10 widgets at £1,000 each and sell one of them at £5,000. In cash accounting I have made a £5k loss, under accrual/ traditional accounting I have made a £4k profit. 

On the basis I am still holding 9 items in stock I haven't really made a loss at all and am likely to make a £45k profit next year from these items. On a long enough timeline cash and traditional accounting gets to the same result but cash accounting makes life simple but unreal. Hence why accrual accounting you can offset losses from other income sources but with cash accounting you can't. 

uknick

Cash accounting losses and other restrictions changes;

Expanding the cash basis - GOV.UK

Not really surprising as cash basis is now the default for sole trader account from April 2024, unless you opt to use accrual basis.