Side Hustle Tax targets people making money online

(4 minute read)

What is Side Hustle Tax and how will it affect me?

In the 2000s, thanks to two forces: the internet and the gig economy, ‘Side Hustles’ took off.  But now, as the Government roll out the new ‘side hustle tax’ with effect from the 1st January 2024 it has many people concerned as to whether or not they will be liable for tax, and if so what to do about it ? In an effort to simplify these new tax regulations we at JK Accounts will explain when, and how these changes will affect you.

As a trader does this tax benefit me?

This tax is beneficial if you have been trading as a business, and filing your return; paying taxes; national insurance etc. Anyone trading as an online business but not declaring themselves or filing returns have considerably less outgoings than you do. By levelling the playing field, so to speak, it makes the marketplace fairer and more competitive.

When does the side tax affect me?

The new taxation means you will be required to register as self employed, file a tax return and pay your dues if you are buying and selling (Trading) with the intention to make a profit, and as a business. Such as things purchased from boot sales, charity shops, e-bay, Vinted, auction houses, and other buy and sell platforms, or similarly:

• Buy to rent or inherited properties 

• Renting a garage

• Renting a parking space 

• Making things to sell

HMRC view ‘Side hustles’ as a means of revenue. The economic state of the country and ever increasing cost of living  means they are clawing back revenue by implementing this new tax. With effect from January 1st 2024 Vinted, Airbnb, E-bay, Dpop to name a few are obliged to collect and share details of transactions with the HMRC. This means anyone trading on these platforms will become more visible to the HMRC. The HMRC do have software designed to process large amounts of data to help them locate anyone who is evading taxes. Sometimes evasion is done quite innocently, and this is why punishments and fines vary. However, these fines can extend to anything up to a whopping 200% of the tax due. 

And so, from 6th April to 5th April in any tax year, you can earn up to £1,000.00 buying and selling on without the need to worry. However, once the profit tips over £1,000.00 turnover, not profit (this equates to £83:33 per month), you should make your declaration to the HMRC as self employed, complete a tax return and pay what your owe each year. Bearing in mind  you can earn up to £12,570 each year 23/24 before you pay any tax at all. 

This is your personal allowance and means if you only make £2,000.00 on your side hustle but you have another job that pays you £8,000 per annum you are still within your personal allowance, and are not liable to pay tax. 

The exclusions are, if you are clearing out your wardrobe, or the kids toys, selling a washing machine, or a family car there is no need to worry as there is no intention to buy to make a profit. The new ruling only applies if you BUY with the sole intention of making a profit eg you buy some shoes from e- bay for £2:00 in the certain knowledge you can sell them on for £20.00. 

How does the HMRC tell the difference? 

If you start to sell many pairs of shoes - more than a normal person might be expected to sell it may raise a flag and trigger an investigation. The same goes for a car. So you sell your car for a few thousand pounds. It’s over the thousand but it was not bought with the intention to sell it on for a profit. If on the other hand you are buying cars at an auction to sell on and its over a thousand pounds you need to declare yourself as self employed because this is classified as trading. 

Either way you want to be contacting HMRC first rather than them contacting you because they can go back over two years (sometimes over 6 years or more depending on the severity) which can be very expensive for you. Tell them you have been trading and think you may have gone over the threshold. Ignorance in this case is no defence and it’s up to you with the help of companies such as ourselves to keep clued up on recent fiscal developments. The HMRC can and will pursue the cases whatever your current knowledge may be. Not always to your detriment but it is a formal process. 

Filing your returns

Don’t forget you need to file your return before the 31st January for your 22/23 tax returns. When it comes to actually filling in your tax return, don’t forget that you'll need to include information about all sources of income. This includes your side hustle, your employment and anything else, such as rental or pension income.

Make sure you keep a record of what you earn, as well as invoices, receipts and bank statements.