If one was to do a bit of freelance work, no more than a few thousand pounds a year, what is best practice when it comes to tax? Off the top of my head there are three options:

1. Declare everything you do on your tax return, the government takes a cut;
2. Set up a public limited company, should help out from tax point of view but I haven't really looked into this;
3. Don't declare anything (probably illegal - but if it's just say £2k a year do you have to declare it?).

What do you recommend? I'd really like to know what practices others are doing and why.

I assume you have a full time job where you on PAYE otherwise £2000 would be below the threshold for paying tax.

If so, you could declare the freelance work through the self assessment system. You can reduce your tax burden by making sure you claim 'legitimate' expenses incurred whilst freelancing, which if you work from home could include phone calls, travel expenses, gas, electric, internet access, stationary, computer hardware etc. It's worth contacting your tax office to get some free advice on what they will and won't allow.

Unless you are being paid cash, is it worth risking getting caught by not declaring. The tax man always seem to catch the minnows rather than the sharks!!!!!!