HMRC has introduced new rules that major online websites and apps such as eBay and Vinted must follow starting 1 January. These new rules aim to ensure those with side hustles are paying the right amount of tax.
The new rules will also impact anyone who intentionally does not declare their income to HMRC to avoid a tax bill.
What is a side hustle?
A side hustle is a job or extra work or services you do for more income outside of your main job.
Side hustles can vary and include freelance writing, selling second-hand goods or even delivering takeaway food.
They can be particularly useful for those struggling with the cost of living crisis.
What are the new rules from HMRC?
The taxman introduced new rules after the UK joined the Organisation for Economic Cooperation and Development, so it can now investigate people who earn money through a company that operates abroad.
HMRC now requires online sites, including eBay, Etsy, Airbnb and Vinted, to report what some users earn via their online transactions.
While the taxman could already request this information from UK-based websites, it’s now mandatory to report financial details such as the number of transactions and bank account details if users earn a certain amount or make at least 30 transactions.
This information can also be shared with other tax authorities (if you’re a resident of that country).
Online sites must start sharing information by 31 January 2025 or face penalties.
Why is HMRC only asking for information on certain sellers?
As everyone has an annual trading allowance of £1,000, the taxman is not interested in getting details of those who won’t be liable to pay any tax.
There’s also the annual property allowance, where you can earn £1,000 tax-free from monetising your home.
It’s worth stressing that if you’re selling goods online, companies will only pass on your information to HMRC if you sell at least 30 items a year or earn around £1,700 in a year.
However, if you earn over £1,000 from a side hustle, you’ll likely need to pay tax and will need to complete a self-assessment form.
HMRC will calculate your tax bill depending on your employment and how much tax you’ve already paid.
If the income from a side hustle pushes you into a higher rate tax band, you’ll have to pay tax at a higher rate.
If you owe any tax, pay it as soon as possible, as there are penalties for late payment, and you may also have to pay interest on any outstanding amounts.
The deadline to submit a tax return for 2022-2023 is quickly coming up on 31 January.
If you need guidance with your tax return, Unbiased can connect you with an accountant who can help you file your tax return accurately and on time.