All I want for Christmas is cash: Understanding the tax implications of a festive side hustle

For many people, Christmas is one of the most costly times of the year, with presents, festive meals and seasonal activities all contributing to a significant increase in spending.

As the festive period approaches, it is unsurprising that people begin looking for additional ways to make money, whether through selling unwanted belongings or starting a small seasonal business to help cover the extra costs.

However, while a side hustle can provide a welcome financial boost, it is important to understand the tax rules that may apply, particularly for those who are unfamiliar with managing their own tax affairs.

When do I pay tax on a side hustle?

Making extra money during the festive season can take many forms, from selling pre-loved clothing on Vinted to producing handmade decorations for Christmas.

However, depending on how much you earn and the nature of your activity, this additional income may be taxable.

If your side hustle generates more than £1,000 in gross trading income during a tax year, you may need to register with HMRC and complete a Self Assessment tax return.

Those who earn between £1,000 and £3,000 may be able to declare their income through a simplified digital reporting service, depending on their individual circumstances and the reporting requirements that apply to them.

For anyone whose gross trading income remains below £1,000, the UK’s Trading Allowance generally means that no tax is payable on this income. The allowance applies to eligible trading income alongside earnings from other sources.

It is also worth keeping an eye on your overall turnover. If your side hustle grows and your taxable turnover exceeds the £90,000 VAT registration threshold, you will generally need to register for VAT and charge it where applicable.

What happens if I don’t pay tax on my side hustle income?

When starting a side hustle, tax may not be the first thing on your mind. However, overlooking your obligations could lead to problems further down the line, particularly if you are unaware of the rules surrounding additional income.

HMRC has various methods of identifying undeclared earnings, meaning that failing to report income could have financial consequences.

If you miss the deadline to pay tax that you owe, you may face interest charges and penalties. These can increase over time, depending on how long the payment remains outstanding.

If you are required to submit a Self Assessment return and fail to do so, you could receive an initial £100 penalty.

Where income has gone undeclared over several tax years, HMRC may investigate the circumstances and seek to recover any tax owed.

To identify potential discrepancies, HMRC can use financial information and automated systems to compare declared earnings against other available records.

In more serious cases involving deliberate and significant tax evasion, HMRC may open a criminal investigation, which could result in prosecution.

How can we help?

Working with an accountant can help you establish what you need to declare, understand whether you need to register with HMRC and identify any tax obligations that may apply to your circumstances.

Our team can provide guidance on your tax position, helping you approach your winter side hustle with greater confidence and peace of mind.

If you are looking to make some extra money this festive season and need advice on the tax implications, get in touch with our team today.