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HMRC’s Income Tax Changes to Clamp Down on Side Hustles

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New HMRC rules on Income Tax are due to take effect on 1st January 2024, targeting those actively making significant money from side hustles – whether it’s profiting from selling crafts & hobby items online or renting out a place on Airbnb, for example, you could be caught out unless your tax affairs are in order1.

In the aftermath of the Covid pandemic and as the Cost-of-Living crisis squeezed disposable incomes further, it’s no doubting that many have sought to make an additional income on top of their day jobs, so these changes by the HMRC are a response to the growing volume of people making money but not declaring it via the traditional manner1.

The HMRC have recently invested over £36m in establishing a dedicated team to monitor online sales, and big firms such as eBay, Uber and Airbnb are now being required to report seller’s income to HMRC1. This means that big sellers online or those making a few pounds on the side as a delivery driver or casually renting out your home via an online platform could land you in hot water if you don’t declare your income fully.

Who does it affect?

Many of us may be familiar with using buying & selling platforms such as eBay to sell secondhand goods or clothing, and according to tax experts, provided you are not considered a ‘trader’ by the HMRC, then you will be fine to continue as you are – but if your purpose is to buy-to-sell, or make considerable volumes of craft items that are purposely to be sold at profit, then you could be affected by the changes1.

Anyone who earns less than £1,000 a year in side-gigs does not have to pay tax or declare income, thanks to the Trading Allowance currently in place2. However, earnings above this amount do need to be declared and would be subject to income tax and national insurance, under the new HMRC regulations.

Recent years have seen a huge rise in popularity of room-rental opportunities, with online platforms such as Airbnb making it easy to make substantial second incomes from short term rental bookings. Under the Government’s ‘Rent a Room Scheme’, you are permitted to earn up to £7,500 a year tax-free from letting out furnished accommodation3, however, if you go above this amount then you must contact HMRC and request that your tax code is changed, or complete one of their self-assessment tax returns.

How to know if you are eligible

Whether you’re eligible to pay tax on online sales depends on whether you are classed as a ‘trader’ by the HMRC. The HMRC may decide this if you buy and sell online regularly with the aim of making a profit4. You can check how HMRC views your circumstances at www.gov.uk/check-additional-income-tax.

It’s important to clarify that these new rules are not aimed at the average person clearing out their attic and selling unwanted items online without intending to make a profit, and this is unlikely to be classified as trading, even if you exceed your £1,000 allowance1.

Similarly, if you occasionally make cakes for friends and family and they pay you small sums to say thank you, then you may not have to pay tax on it. The intention behind the HMRC income tax changes are to ensure fair payment of income tax from prolific online sellers running a commercial enterprise, or making large volumes of income from services that would previously go unrecorded on self-assessment tax forms1. However, there are doubtless grey areas as to exactly what is defined within the new regulations, so if you are in any doubt, it’s advisable to speak to the HMRC or to seek independent financial advice from a trained professional.

If you are concerned regarding an historical income, it is also worthwhile contacting the HMRC, it pays to be proactive and disclose any dealings upfront, then it may result in receiving a less-harsh penalty than you might otherwise receive1.

When are the deadlines?

Any income for the tax year ending on April 5, 2023 need to be reported to HMRC by January 31 next year1.

As always, it’s worth seeking independent financial advice if you have any queries regarding your position.

Sources

This is Money (2023) Is the taxman coming for YOUR side hustle? Airbnb, Ebay and Uber to hand over income data directly to HMRC. Available at: https://www.thisismoney.co.uk/money/bills/article-12640869/Is-taxman-coming-hustle-Airbnb-Ebay-Uber-hand-income-data-directly-HMRC.html (Accessed 18 Oct 2023)
The Times Money Mentor (2023) Side hustles: the crucial £1,000 tax rule. Available at: https://www.thetimes.co.uk/money-mentor/article/side-hustle-tax-uk-need-to-pay-hmrc/ (Accessed 18 Oct 2023)
Gov.UK (2023) Guidance: HS223 Rent a Room Scheme (2023). Available at: https://www.gov.uk/government/publications/rent-a-room-for-traders-hs223-self-assessment-helpsheet/hs223-rent-a-room-scheme-2023 (Accessed 18 Oct 2023)
Gov.UK (2023) HMRC Business Income Manual. Available at: https://www.gov.uk/hmrc-internal-manuals/business-income-manual/bim20060 (Accessed 18 Oct 2023)
All the information in this article is correct as of the publish date 26th October 2023. The opinions expressed in this publication are those of the authors. The information provided in this article, including text, graphics and images does not, and is not intended to, substitute advice; instead, all information, content and materials available in this article are for general informational purposes only. Information in this article may not constitute the most up-to-date legal or other information.

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