---
title: Can I Offset the Costs of a Side Hustle Against My Main Business?
description: Can you offset side-hustle costs against your main business income? A plain-English guide for sole traders and limited companies.
---

[blog](https://esxr.co.uk/blog)

# [Can I Offset the Costs of a Side Hustle Against My Main Business?](https://esxr.co.uk/blog/can-i-offset-the-costs-of-a-side-hustle-against-my-main-business)

 Written by [Dean Shepherd CTA FMAAT, Chartered Tax Adviser, ~30 years experience](https://esxr.co.uk/blog/author/dean-shepherd) | Dec 15, 2025 8:48:02 AM

It’s a familiar story.

You’re running a perfectly healthy creative business — an agency, freelance practice or consultancy — and alongside that you start tinkering with something new.

Maybe you’re:

- Building an AI tool to automate part of your workflow

- Creating an online course or membership

- Developing a SaaS product for your industry

- Writing a paid newsletter or resource library

Before long, real money is going out of the door:  
software subscriptions, developer costs, hosting, branding, ads, maybe even contractors.

The obvious question follows:

**Can I offset those costs against the profits of my main business?**

The answer is: **sometimes yes, sometimes no — and it depends on how the activity fits with your existing business and your legal structure.**

Let’s break it down.

 

 

### The Core Question HMRC Cares About

Whether you’re a **sole trader** or running a **limited company**, HMRC is really asking one thing:

> Is this new activity **part and parcel of the existing trade**, or is it a **separate trade altogether**?

That single distinction drives everything:

- Whether losses can be offset

- Whether costs reduce your main tax bill

- Whether profits need to be looked at separately

 

 

### Sole Traders: One Business or Two?

##### When it’s Usually Fine to Treat It as One Business

For sole traders, HMRC is often fairly relaxed **where the side hustle is closely connected to what you already do**.

Examples:

- A freelance designer creating a paid design course

- A consultant building an AI tool that supports or extends their core service

- A content creator launching paid templates or resources

If the new activity:

- Uses the **same skills**

- Targets the **same audience**

- Supports or enhances the **existing business**

…then it’s often reasonable to treat it as **one single trade**.

In that case:

- The costs of building the AI tool or course are just business expenses

- Early losses can reduce the overall taxable profit

- There’s no artificial split required

From a tax point of view, it’s all just **one self-employed business evolving over time**.

 

##### When It Starts to Look Like a Separate Trade

Things get trickier when the side hustle starts to **diverge**.

Red flags include:

- A completely different customer base

- Very different activities (e.g. a photographer starting a fitness app)

- Separate branding, websites or marketing strategies

- A clear intention to sell or spin it out later

In those cases, HMRC may see this as a **separate trade**, even if you personally run both.

If it *is* a separate trade:

- Losses **may still be claimable**, but under specific loss-relief rules

- HMRC may expect separate tracking of income and costs

- You can’t automatically offset everything without thought

This doesn’t mean it’s “wrong” — just that it needs handling carefully.

 

 

### The Hobby Loss Problem

There’s also one important warning for sole traders.

If the side hustle:

- Never makes money

- Has no realistic prospect of profit

- Looks more like experimentation than a business

HMRC can argue it’s **not a trade at all**.

In that situation:

- Loss relief can be restricted

- Costs may not be fully deductible

This is especially relevant for passion projects that *might* turn commercial “one day”.

Intent matters.

 

 

### Limited Companies: Different Rules, Different Risks

For limited companies, the analysis shifts slightly.

A company can only deduct costs that are:

> **Wholly and exclusively for the purposes of its trade**

So the question becomes:

**Is the AI tool or course genuinely part of what the company does?**

 

 

### When It Can Sit Inside the Same Company

If your company:

- Already operates in a related space

- Is developing the tool or course as an extension of its services

- Intends to monetise it within the same business

…then development costs are often fine to deduct:

- Software

- Contractors

- Hosting

- Marketing

- Prototyping

Early losses just reduce the company’s overall taxable profit.

This is very common with:

- Agencies building internal tools they later commercialise

- Consultants productising their knowledge

- Creative businesses launching digital products

 

 

### When It Starts to Get Awkward

Problems arise when:

- The project is speculative and long-term

- It’s not clearly linked to the company’s existing activity

- The intention is to spin it out into a new company later

HMRC may start to question:

- Whether the costs really belong in the trading company

- Whether some costs are capital rather than revenue

- Whether R&D rules apply (which brings a whole extra layer of complexity)

This is often the point where **setting up a separate company** becomes worth considering — not always for tax savings, but for:

- Risk management

- Cleaner accounting

- Future investment or sale

 

 

### Ring-Fencing: When and Why It Happens

“Ring-fencing” isn’t something you elect — it’s something that happens when activities are **clearly separate**.

You’re more likely to see it where:

- The side hustle is fundamentally different

- There are long periods of losses

- The commercial rationale is unclear

When ring-fenced:

- Losses can’t automatically offset other profits

- HMRC expects clearer separation and justification

This doesn’t mean you’ve done anything wrong — but it does mean **planning ahead matters**.

 

 

### The Practical Takeaway

There’s no automatic rule that says:

> “Side hustle costs must be kept separate”

Equally, there’s no blanket permission to:

> “Offset everything against your main business forever”

The reality sits in the grey middle.

For many creative businesses:

- Side projects evolve naturally from the core business

- Treating them as part of the same trade is perfectly reasonable

- Problems only arise when things drift without a clear plan

 

 

### A Final Thought

Before you spend serious money on:

- Developers

- Platforms

- Long-term subscriptions

…it’s worth asking one simple question:

**Is this an extension of what my business already does, or the start of something new?**

The tax treatment flows from that — not the other way around.

If you get it right early, you avoid:

- Disallowed costs

- Awkward HMRC questions

- Restructuring later under pressure

And if you’re unsure, this is exactly the kind of thing that’s cheaper to discuss **before** the money goes out the door.

[View full post](https://esxr.co.uk/blog/can-i-offset-the-costs-of-a-side-hustle-against-my-main-business)

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