TIGHTENING THE REINS ON ‘SIDE HUSTLES’ – NAVIGATING HMRC’S NEW POWERS
Released On 16th Jan 2024
HM Revenue & Customs (HMRC) is now using new powers granted to them by the Government to target a key area of tax evasion – online traders.
Individuals selling on platforms like eBay, Vinted, or Depop must now be vigilant about their sales and income generated from them and what is reported to the tax authority.
This is because HMRC now mandates these platforms to track and report sellers’ earnings. Operators may incur significant fines for non-compliance.
Effective from 1 January 2024, these rules also encompass short-term rental platforms like Airbnb.
With online selling being a popular means of supplementing income, these new rules could impact many if their earnings exceed a certain threshold.
Understanding the £1,000 allowance
The £1,000 allowance applies to employed individuals with an additional income source. This extra income often comes from irregular and casual activities, such as:
- Freelance writing or designing
- Crafting and selling handmade items
- Pet or house-sitting
- Tutoring
As these jobs are usually casual and might involve cash payments, many overlook the need to pay tax on these earnings, especially at the outset.
In the UK, there’s a £1,000 tax-free allowance for income beyond one’s primary job. Beyond this, you must register as self-employed and file a Self-Assessment tax return to declare your additional income and determine your tax liability.
Navigating Self-Assessment
Self-Assessment is HMRC’s method for collecting income tax from those not using the PAYE system.
You need to submit this by 31 January following the tax year it pertains to, which ends on 5 April.
You’re also required to settle any tax due by 31 January of the subsequent year. For instance, for the fiscal year from 6 April 2023 to 5 April 2024, you must file your return and pay any tax by 31 January 2025.
Be aware that even if you do pay tax via PAYE, you will also need to submit a tax return if you have additional income outside of salaried pay, such as a ‘side hustle’.
Failing to submit on time can lead to a minimum fine of £100, escalating for delays beyond three months.
Implications of the new regulations
For some, these changes won’t impact their earnings if they remain below the £1,000 limit and those regularly earning well above this threshold are likely aware and consistently submit a Self-Assessment.
However, those with earnings in-between should monitor their income carefully to see if it crosses the threshold.
Many individuals with ‘side hustles’ unknowingly omit e-trading income from their tax declarations or fail to submit a tax return altogether.
Therefore, all e-traders and side hustle participants should meticulously record their sales and earnings. This practice will help determine whether you need to pay tax on your income.
For detailed advice and guidance on the latest tax rules, please contact our expert team today.
