Side hustle tax: What you need to know

by | Jan 11, 2024

The dawn of 2024 has brought about changes that echo across the digital landscape, particularly for those who dabble in the world of online marketplaces and side hustles.

Platforms like eBay, Airbnb, Fiverr and Uber have come under the scrutiny of tax authorities with the new ‘side hustle tax’. From 1 January 2024, these platforms are now obligated to collect and report seller information and income to HMRC, with the first reports due in January 2025.

The nitty gritty

Before you fret about a sudden imposition of a ‘new tax rule,’ let’s dispel that notion. This move is in response to a long-standing issue: capturing undeclared income from individuals who engage in profit-oriented trading through online platforms without fulfilling their tax obligations.

This isn’t about the occasional sale of old clothes or household items; it’s about cracking down on those who generate substantial income without contributing their fair share.

The rationale is clear: around 700,000 incomes from people renting out second homes are not being reported to HMRC. This staggering figure represents about a third of landlords in England and Wales, potentially evading taxes on their rental income.

The issue isn’t confined to the UK; these changes align with an internationally agreed set of rules, compelling digital platforms to report specific information to tax authorities.

So, how do you know if you’re inadvertently caught in the tax net? Let’s pose a few questions to help navigate this complex terrain:

1. Have you received income of over £1,000?
In the UK, individuals can take advantage of the trading allowance to earn up to £1,000 in additional income each tax year without the need to register as self-employed. If you surpass this threshold, registration becomes mandatory, and certain tax obligations come into play.

2. Are you trading?
If you buy goods for resale or create items with the intent of making a profit, you are likely trading. However, selling occasional, unwanted items online as a one-off activity may not classify you as a trader. HMRC provides specific examples on their website to help clarify this distinction.

3. Have you received correspondence from HMRC?
Some platforms, notably Airbnb, are already sharing users’ income details with HMRC. If you’ve received a ‘nudge’ letter from the tax authority, it’s crucial not to ignore it. Assess your trading activities and income, and seek professional advice if in doubt.

4. Have you sold a personal possession for more than £6,000 (and made a profit)?
Capital gains tax may apply if you sell personal possessions like jewellery or antiques for £6,000 or more, making it essential to report such transactions.

Why do you need an expert in your corner when it comes to side hustle tax?

1. Stay informed: As the tax landscape evolves, staying informed about regulations is crucial. Regularly check HMRC updates and seek professional advice when necessary.

2. Accurate record-keeping: To ensure compliance, meticulous record-keeping of your income and expenses is vital. While platforms may report earnings, maintaining detailed records can help avoid discrepancies.

3. Tax optimisation: Experts can help you understand your tax obligations and identify areas for tax optimisation, ensuring you pay the right amount and claim applicable deductions.

4. Self-assessment: If you fall under self-employed trading rules or other criteria for self-assessment, it’s essential to register promptly. Professionals can guide you through this process, keeping your financial position up to date.

With this new rule in force, it’s crucial for anyone generating income from online platforms to be proactive. The era of undeclared earnings is drawing to a close, and the emphasis is on transparency and making a fair tax contribution.

So, whether you’re selling crafts, driving for a rideshare service, or letting out a spare room, understanding and adhering to these tax rules will keep you on the right side of the law.

Remember, it’s not about stifling side hustles; it’s about ensuring everyone plays their part in supporting the communal coffers. Stay informed, keep accurate records, and if in doubt, seek professional guidance to navigate this new era of digital taxation.

Cottons is here to help. Get in touch today.


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