Do you regularly sell on sites such as Vinted, eBay, Etsy, and Amazon? Do you rent out your driveway to gain a nice handful of extra cash every now and again?
Are your annual earnings from these sites and services over £1,000?
If so, it’s likely that you will be required to pay tax on your extra earnings in-line with HMRC’s new year clampdown.
Dan Whittaker, personal finance expert at vivamoney.co.uk, shares all you need to know about ‘Side Hustle Tax’, if you’re likely to be affected by it, and how you can avoid a penalty.
What are the new tax rules?
“As of 1st January 2024, various companies operating online are now required to share seller’s transaction details with tax authorities. This includes how many sales have been generated, and how much money has been made in total,” Dan explains.
“This in itself is not a new practise; HMRC have always been able to ask online merchants for information. However, the new year has brought about new rules in the UK via the Organisation for Economic Cooperation Development (OECD), which is part of a wider effort to reduce the global issue of tax evasion.
“This makes it easier for HMRC to access information, income, and gain an insight into who may need to pay additional tax.”
Which websites will be affected by the new rules?
“Some of the websites that will be required to provide seller information include:
- Any website or app that connects sellers to customers, such as gardening, cake making and even renting out your driveway.”
Who will be impacted by the new rules?
“From advertising our pre-loved clothes on Vinted to selling homemade crafts on Etsy, many of us use online platforms to bring in a little bit of extra income.
Vinted alone boasts 75 million active users across 16 different countries.
With this mind, it’s understandable that this latest development may raise panic in a fair few of us.
The good news is that you’re unlikely to need to pay tax if you’re simply flogging two old t-shirts and a pair of jeans each year. In fact, the OECD’s rules specify that firms will not be asked to provide information about sellers making less than 30 transactions or €2,000 (£1,735) per year.
If you earn £1,000 or more through any additional platform, you may need to pay tax. There are, however, exceptions to the rule. If you do not have a ‘main’ job, your side hustle is able to earn you up to £12,570 per year before you’re required to pay tax. This is known as tax free personal allowance.”
I rent out a room in my home – what are the rules?
“If you rent out a room in your main residence, you are entitled to £7,5000 of tax-free rent per year. If you hare the income with somebody else, the individual tax-free amount is halved to £3,750. This includes Airbnb set ups.
Any earnings over these thresholds will be taxed accordingly.”
What happens next?
“You don’t need to do anything if you’re a seller earning over £1,000 a year and you already pay tax.
On the other hand, if you think you are eligible to pay tax on money previously earned through your ‘side hustle,’ you should complete a Self-Assessment tax return as soon as possible. The online deadline for earnings accrued between 6th April 2022 and 5th April 2023 is 11:59pm on 1st January 2024.
“You can file your self-assessment tax return via the Gov.uk website. Submitting a late Self-Assessment tax return – or not completing one at all – will result in penalties.”
Dan added, “Tax can be a confusing topic, and you may not even realise that you do owe anything until that awful letter drops through your letterbox. You can find out more about Self-Assessment tax returns and check to see if you may need to file one on the gov.uk website.
“It’s better to check and know where you stand, rather than ignore it, hope for the best and be hit with an unexpected penalty later.”
Viva Money has explained the new ‘side hustle’ tax rules and detailed what to do if you think you may owe money to HMRC to avoid penalties.