Background
With the cost of living and changes to tax thresholds taking a bite out of pay packets, more people are turning to a side hustle to help make extra cash. However, it should be remembered that such entrepreneurs will need to check if their earnings exceed £1,000 a year.
With the prevalence of social media, a new money-making trend seems to appear every week, the newest of these being ‘cake sheds’, colourful unmanned roadside cabinets containing cakes, brownies or biscuits, which customers pay for via an honesty policy.
Individuals making sales of £1,000 or more in a year will need to consider whether they are required to file a self assessment tax return with HM Revenue & Customs (HMRC). There may well then be income tax and National Insurance contributions to be paid on such income.
Detail
While cake sheds are a relatively new term, the concept is not. The UK has a long tradition of farm gate and honesty box selling, where households and farmers leave eggs, vegetables, plants, flowers, jams, firewood and other goods for customers to buy and pay for on trust.
The cake shed trend seemingly accelerated after the pandemic, with websites appearing marking the locations of hundreds of sheds. The practice has apparently become lucrative, with some shed-based bakers making up to £600 a week.
Cake shed owners, and other similar side-hustles, could be facing large tax bills from HMRC if they have not registered for self-assessment. Anyone who sells cakes via an outdoor cabinet or “cake shed” needs to be aware that HMRC has a number of avenues for determining whether individuals with side-hustles are fully tax compliant or whether they are inadvertently ‘jammy dodgers’. Some people may not realise that the cash from baking and selling cakes is classed as trading income.
Anyone who earned over the £1,000 threshold from side hustles in the 2025/26 tax year will need to register for self assessment as a sole trader, if they are not already registered. They will need to include the income from their side hustles on their tax return which, must then be filed with HMRC and tax due paid by 31 January 2027.
Whether selling cakes from a shed, handmade decorations, upcycled furniture, or running a seasonal market stall, it is important to understand when your side hustle becomes taxable trading.
The threshold applies to all trading activities in total, so someone earning £600 from cake sales and £500 from online posts and sponsored blogs for example would need to register as the total would exceed £1,000.
HMRC have stressed that there is an important distinction between simply decluttering homes by selling unwanted personal belongings – which does not usually require reporting to HMRC – and trading activities like making items to sell for profit, which may be taxable.
HMRC does have a dedicated website for such side hustles with tips and advice and a tool to calculate tax liability –HMRC Help For Hustles portal. There is also a useful online tool to check if you need to tell HMRC about income that is not from your employer, or not already included in your Self Assessment – HMRC Online Checker Tool.
Failing to register for self-assessment can result in penalties of between 20% and 70% of the tax due where HMRC judge the behaviour to have been “deliberate but not concealed” – the unpalatable icing on the top is significant interest charges where tax is paid late,
If you would like further information on the tax impact of side hustles and online trading, or on any of the points raised above, please contact our Tax Director, Jenny Marks.
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