HMRC crack down on ‘side hustles’ – what are the changes?

HMRC has introduced new measures to target tax evaders in the growing online trading sector.

If you sell on platforms like Vinted, Depop, or eBay, you need to be aware of how your sales and any income generated from your ‘side hustle’ impacts your tax obligations.

HMRC are enforcing these new rules on all selling platforms meaning that they can see and report on what earnings you have created since starting your ‘side hustle’ so you pay the right tax.

If you do not pay the tax you owe, you might be obligated to pay significant fines.

The new measures came into effect from 1 January 2024, with short-term rental platforms like Airbnb also being affected.

Online selling is a popular way to supplement income, but the new rules set out by HMRC could impact your ‘side hustle’ if your earnings exceed a specific threshold.

The £1,000 allowance

The £1,000 allowance is available to all UK individuals who are employed and have an additional income source.

The extra monies often come from improper and relaxed activities, like:

• Freelance writing or designing
• Crafting and selling handmade items
• Pet or house-sitting
• Tutoring

As these jobs normally involve cash payments and aren’t recognised as ‘proper’ jobs, lots of people fail to pay tax on these earnings because they think they don’t need to.

Anything past this current threshold means you must register as self-employed and file a Self-Assessment tax return to declare your extra income and determine your tax liability.

How do I navigate Self-Assessment?

Aside from the PAYE system, HMRC also collect tax via Self-Assessment.

This tax return must be done by 31 January following the tax year it relates to, which ends on 5 April.

Any overdue tax must also be settled by you; this needs to be completed by 31 January of the following year.

For example, the fiscal year from 6 April 2023 to 5 April 2024 means you must file your return and pay any tax by 31 January 2025.

It is worth noting that even if you do pay tax by PAYE, you will also need to submit a tax return if you have extra income outside of a salaried pay.

If you submit late, you might receive a minimum fine of £100, which increases for delays extending past three months.

What are the implications of the new rules?

Some people’s earnings won’t be affected by these changes if they remain below the £1,000 limit, whilst those regularly earning well above the threshold are usually aware and always submit a Self-Assessment.

If your earnings are in-between, however, you should carefully check your income to see if and when it crosses the threshold.

All online sellers and ‘side hustle’ owners should record their sales and earnings correctly as this will help you to determine whether you need to pay tax on your income.

If you need detailed advice and guidance on the latest tax rules, please contact us today.