HMRC is aiming to bring in new rules in 2024 with the goals of ensuring that individuals with income from a side hustle accurately calculate their tax obligations and cracking down on those who intentionally evade paying income tax.
Reports indicate that HMRC are serious with an investment of approximately £37 million and recruiting a team of 24 full time employees in order to implement and enforce the initiative.
The internet has brought in many ways for individuals to earn some extra income from a side hustle.
HMRC knows this and is using the new regulations to force digital platforms that enable people to earn additional income to provide them with their users’ income details.
Previously HMRC had the authority to request this information but starting next year online companies will be obligated to report this information for all their users.
This will effect all the big players in the digital economy like Amazon, Airbnb, Etsy and Deliveroo who will all be obliged to disclose the income of their userbase.
HMRC will then know what you have been earning from your online side hustle and will be able to check what you have put on your tax return with greater accuracy.
Side hustles are becoming increasingly popular sometimes due to the rising cost of living that makes it challenging for many individuals to make ends meet.
If you are accurately declaring your side hustle income to HMRC already nothing really changes but if you aren’t and not sure what to do next you should read on to find out more.
What is classed as a side hustle by HMRC?
In basic terms a side hustle refers to earning money from an activity that is not your primary job.
The new regulations are part of a worldwide effort to crack down on tax evasion and may have implications for various individuals including holiday rental hosts, delivery drivers, online marketplace sellers and freelancers.
There are numerous ways in which people can generate additional income online like being a landlord through Airbnb or taking on shifts as food delivery couriers for companies like Deliveroo.
For tax purposes you are classified as a ‘trader’ by HMRC if you engage in online selling whether it involves goods or services and HMRC expects you to declare this income so you can pay tax on it where appropriate.
£1000 tax free side hustle trading allowance
HMRC offers the self employed trading allowance to individuals who work for themselves. This allowance is especially beneficial for sole traders who are part of the gig economy with a side hustle.
The tax free trading allowance is worth £1000 which means if the income you make from your side hustle is below this threshold you shouldn’t need to declare it to HMRC.
If you have multiple sources of trading, casual, or miscellaneous income, you can only use one self employed trading allowance per tax year.
For landlords using the likes of Airbnb a property income allowance worth £1000 can be used which is separate to the trading allowance.
The property income allowance can be used in addition to the trading allowance in the same tax year.
Both the trading allowance and property income allowance can be used in addition to your tax free personal allowance.
Rent a Room Scheme
Under the rent a room scheme individuals have the opportunity to generate tax free income of up to £7,500 by renting out furnished accommodation within their own homes.
If your income is below £7,500 you will automatically qualify for a tax exemption. In this case there is no action required on your part but if you earn more than £7,500 it is necessary for you to complete a self assessment tax return.
Online income from overseas
The tax office has already been granted the authority to request data on the earnings of sellers, including their bank account information, from UK based apps and websites.
But the issue arises when it comes to digital platforms that are situated overseas like holiday rental websites which can enable certain individuals to evade taxes without detection.
To address this HMRC has recently agreed to adhere to the regulations set forth by the Organisation for Economic Co-operation and Development (OECD).
This decision empowers HMRC to investigate the tax affairs of individuals who earn income through companies operating abroad.
Through these measures, HMRC will also exchange information with other tax authorities that have agreed to participate in the OECD rules.
When a seller is a resident of one of these countries or jurisdictions, the relevant tax authority will share a copy of the seller’s details.
Side hustle self assessment tax return
If you are earning additional income exceeding £1,000 per tax year from your side gig HMRC expects you to register yourself as self employed.
After registering as self employed you will be sent a ten digit unique tax reference number (UTR) and be required to submit a self assessment tax return.
The tax return will need to include your side hustle income for the full tax year (running from 6 April to the following 5 April) and any other income you may have for example PAYE income.
You can register for self assessment online via .GOV.UK by opening a new self assessment record or by re-registering if you’ve had a SA record in the past.
It’s crucial to maintain a detailed record of your business income and expenses throughout the year as this information will be required when completing the self assessment process.