HMRC’s “New Tax Rules for Side Hustles”: What do you need to do?

It has been widely publicised that from 1 January 2024, digital platforms such as eBay, Vinted, Airbnb, Fiverr, Upwork, Uber, Deliveroo, and Etsy, are required to collect and report seller information and income to HMRC. They must report sellers’ income by January 2025.

For tax, an ‘online marketplace’ is any digital platform that handles and enables the sale of goods and services from individuals and/or businesses to customers.

However, is this really a ‘new tax rule’ and specifically for ‘side hustles’? Absolutely not.

Why the change?

The reasoning behind the additional reporting is to capture undeclared income from individuals who trade through these platforms with a view of making a profit, and do not pay tax on their earnings. Therefore, it is targeting taxpayers who have not properly declared their income.

It is not designed to catch out people who sell unwanted items that have been laying around the home, such as clothes that no longer fit!

It is reported that around 700,000 incomes of people who rent out second homes are not being declared to HMRC. This is the equivalent to around a third of landlords in England and Wales potentially not paying tax on their rental income.

This is not just in the UK. The changes are an internationally agreed set of rules requiring digital platforms to report certain information to HMRC. Some digital platforms, like Airbnb, have already provided information in the past when requested by HMRC, with varying degrees of ‘success’.

But how do you know if you have undeclared ‘trading income’ to report? Ask yourself the following questions:

Have I received income of over £1,000?

In the UK, individuals can earn up to £1,000 in additional income each tax year (before deducting expenses) without the need to register as self-employed. This is known as the Trading Allowance. However, if you earn more than this threshold, you may be required to register as self-employed and pay tax on your earnings.

It’s important to note that you have an obligation to register as self-employed if your income before expenses is over £1,000, not the net amount after platform and delivery fees. However, you also need to meet the trading test.

Am I trading?

If you buy goods for resale or make goods with the intention of selling them for a profit, then you are likely to be trading. There are a number of examples on the HMRC website found here.

For those selling unwanted items online, likely as a one-off activity, then it is unlikely that you will be deemed to be trading. In any case, it is most likely that these items will be sold for less than you purchased them for.

Have I received a ‘nudge’ letter from HMRC?

There have already been multiple cases where digital platforms, most notably Airbnb, have provided HMRC with details of landlord income. HMRC take this data, cross reference it to tax returns, and may send a ‘nudge’ letter to individuals who they believe may need to report undeclared income.

If you have received one of these letters, you should not ignore it. Consider the questions around trading, the magnitude of your income, and if in doubt, get in touch with us.

Have I sold a personal possession for more than £6,000 (and made a profit)?

You may have to pay Capital Gains Tax if you make a profit when you sell a personal possession for £6,000 or more. This may include jewellery, paintings, antiques, coins and stamps (for example). It doesn’t include cars generally, or anything with a limited lifespan.

These items could be sold through digital platforms and reported to HMRC.

Why you might need an expert:

Our team specialises in eCommerce accounting, making us a valuable resource for individuals navigating these tax rules.

Stay Informed: It’s essential for individuals trading through digital platforms to stay informed about tax regulations. Regularly check HMRC updates and seek professional advice if necessary.

Accurate Record-Keeping: To ensure compliance with tax rules, meticulous record-keeping of your income is crucial. Platforms may report your earnings but maintaining your records and splitting out gross income and other platform/delivery fees can help avoid discrepancies.

Tax Optimisation: We can assist individuals in understanding their tax obligations and identifying areas where you can optimise your tax position, ensuring you pay the right amount of tax and claim applicable deductions.

Self-Assessment: If you fall under the self-employed trading rules or meet other criteria for self-assessment (such as rental income or untaxed income), it’s important to register for self-assessment tax. Our tax team can guide you through this process.

We can help you keep your financial position up to date and resolve any issues now rather than running the risk of HMRC finding out and applying stricter penalties in the future. To ensure you have an accurate understanding of the tax rules and how they may impact your current or future position, get in touch with our e-Commerce team.

Author: Jake Standing, Director, Plus Accounting

Any views or opinions represented in this blog are personal, belong solely to the blog owner and do not represent those of Plus Accounting. All content provided in this blog is for informational purposes only. The owner of this blog makes no representations as to the accuracy or completeness of any information on this site or found by following any link on this site.

Date published: 05 January 2024

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