Earning extra income or testing a new business idea through a side hustle can be both rewarding and practical. With careful planning and the right knowledge, you can set up a compliant, profitable venture alongside your main job. In this guide you will find everything you need to know to get started, from choosing a business structure to managing your time, tax obligations and legal risks.
1. Assess profitability and market opportunity
• Define your idea and target customer. Estimate how many customers you could reach each month.
• Calculate all costs, including materials, equipment, marketing, platform fees and other charges.
• Compare likely income with costs to make sure you will clear a meaningful margin.
• Look for growth niches such as eco friendly products, online tutoring or specialist local services.
• Do quick market research by surveying friends and potential customers, checking forums and using Google Trends to test demand.
2. Decide your legal structure.
Your choice affects tax, paperwork and personal liability.
Sole trader:
• Easy to register with HMRC online
• No Companies House filing required
• You keep the profits but are personally liable for debts
Private limited company:
• Limited personal liability to your investment in the company
• Often more tax efficient once profits grow
• Requires Companies House registration, annual accounts and confirmation statements
Many side hustles start as sole traders and move to a limited company as they grow.
3. Register with HMRC and meet tax requirements.
• If self employed income exceeds £1,000 in a tax year you must register for Self Assessment.
• Sole traders must complete an annual Self Assessment tax return and pay Income Tax and National Insurance contributions, typically Class 2 and Class 4.
• Companies must register for Corporation Tax within three months of starting to trade. Directors often need individual Self Assessment registrations.
• If turnover exceeds the VAT threshold, currently £90,000 for 2025 to 2026, you must register for VAT and charge it on invoices.
4. Keep accurate records and bookkeeping
• Log every sale and income payment, with date and client details.
• Keep receipts, invoices and bank statements for all expenses.
• Use a dedicated business bank account to separate business and personal transactions.
• Consider accounting software such as FreeAgent, Xero or QuickBooks to record transactions and produce reports.
• Remember Making Tax Digital rules require digital records for VAT and will extend further in future.
5. Obtain suitable insurance
Choose cover that matches your activity:
• Public liability insurance if you meet the public or clients in person.
• Professional indemnity if you give advice or professional services.
• Product liability if you manufacture or sell goods.
• Employers liability if you hire staff.
Compare small business policies and consider bundled cover to reduce costs.
6. Build a simple brand and online presence
• Choose a memorable business name and check it is not already in use.
• Confirm the name is available as a domain, on major social channels and for a Google Business Profile.
• Create a simple logo and colour scheme using free tools such as Canva.
• Set up a basic website or landing page on a platform like WordPress.
• Open social media profiles where your customers spend time.
Consistent branding across channels helps customers recognise your business.
7. Develop a marketing and advertising plan
• Define your ideal customer by age, location, interests and needs.
• Research where they look for solutions online, such as social media groups or Google search.
• Use low cost tactics: SEO for your website, blog posts, short videos, email newsletters and referrals.
• Test paid ads on a small budget with Facebook or Google and measure results.
• Set simple targets, for example five new enquiries a month, then review and adapt.
8. Open a separate business bank account
• Separating finances simplifies bookkeeping and tax returns.
• It presents a professional image when clients pay you.
• It helps you track cash flow and spot issues early.
Consider high street and app banks such as Starling Business and Tide for low cost accounts.
9. Plan your time and capacity
• Map out your weekly schedule and block times for your side business.
• Decide in advance how many hours you will commit each week.
• Use a task manager or calendar to stay organised.
• Consider how evening and weekend work will affect your work life balance.
Have a plan for outsourcing or scaling back if demand outstrips capacity.
10. Estimate start up costs and funding
• List one off and ongoing costs: equipment, stock, website, marketing and professional fees.
• Decide how to fund the business: personal savings, small business loan, overdraft, peer to peer lending, crowdfunding or grants.
• Build a modest contingency fund for unexpected costs.
11. Draft a simple business plan
A short plan keeps you focused:
• Executive summary of your idea and objectives.
• Market analysis and competitor overview.
• Product or service description and pricing.
• Marketing and sales strategy with channels and budget.
• Financial projections for year one, including break even.
• Key risks and contingency plans.
Two to four pages is usually enough for a side hustle.
12. Check your employment contract and conflicts
• Review your employment contract for clauses restricting outside business activity.
• Check whether you need written permission from your employer.
• Look for non compete or confidentiality clauses that could affect your new venture.
If unsure, discuss with HR or take legal advice.
13. Assess your skills and consider outsourcing
• List tasks you will do yourself and tasks you prefer to outsource.
• Outsourcing can be easier and more cost effective than hiring staff.
• Popular outsourcing platforms: Upwork, Fiverr, PeoplePerHour and Freelancer.com.
• Check freelancer ratings and portfolios, start with a small test project and agree clear briefs and milestones.
14. Legal considerations and intellectual property
Protect your business and avoid disputes:
• Trade marks: check the UK Intellectual Property Office trade mark database to ensure your name, logo or slogan does not infringe a registered trade mark.
• Patents: if you have an invention, search patent databases such as UKIPO or Espacenet to see if similar patents exist.
• Copyright and design rights: you automatically own original content and designs, but ensure you are not copying others.
• Domain names: confirm your preferred domain is available and does not infringe existing brands.
If unsure, consult an intellectual property solicitor or a local Business and IP Centre.
15. Maintain compliance and review regularly
Make these tasks part of your routine:
• Reconcile accounts each month and review cash flow.
• Update Self Assessment figures throughout the year to avoid surprises.
• Renew insurance and check cover levels annually.
• Review and refresh your marketing plan every quarter.
• Set aside time for training and networking.
Regular reviews help you spot problems early and seize opportunities.
Starting a side hustle is a journey that combines passion with practical planning. By following these steps you can lay a strong foundation, protect yourself legally and financially and give your business the best chance to flourish.
If you need expert support on tax registration, bookkeeping or growth planning, Taxwise Accountancy is here to help. Contact us for a free consultation and let us simplify the financial side of your new venture.
Other Useful Information for your side hustle business
- How to Structure Your Side Hustle or Side Business
- How Side Hustle Businesses Can Reduce Tax
- Accountants for Side Hustle Businesses
