“How do side hustles impact your taxes?” And other key questions

Recently, HMRC flagged four million Brits who make money online after a ‘rule change’ that impacts side hustles.

Sometimes the stories miss, or don’t make clear, that the rule change has not suddenly created a new tax charge, but rather that HMRC now receives information as a matter of course from online platforms like eBay, Amazon, etc.

We’ve written about this subject before, (please see here) but it is worth a reminder of some of the key points.

What is not taxable when it comes to side hustles?

There is a £1,000 trading allowance, which means that even if you are conducting a ‘trade’, if your sales are below £1,000 in a tax year, any profit is not taxable.

So, if you’re scouring eBay for bargains and selling at a profit or making jam to sell at the local church fete, and your income is less than £1,000 per year, you need not worry.

(That’s not to say that you won’t have to answer to the Food Standards Agency if you are selling jam but that isn’t my area of expertise).

Also, if you are only selling old, surplus items (and most probably for less than you purchased them), this would generally not be taxable.

For the vast majority of people, selling your old clothes, or your children’s old toys, won’t create any tax liability, even if you have had a huge spring clear out and make quite a bit of money.

If you do dispose of an old item for more than £6,000, and for more than you paid, you may need to consider whether a capital gain has arisen in relation to disposal of a ‘chattel’.

For most people this is likely to be a rare occurrence.

If you think that this may apply to you, HMRC has a useful help sheet or you can get in touch with our team for help.

What part of a side hustle is taxable?

If your income is over £1,000, and it is not in relation to selling old or unwanted items, you’ll need to consider whether you now have taxable income.

In terms of ‘gig economy’ platforms, like delivering food or providing taxi services, this would be considered to be trading income, and any profit would be taxable, subject to the £1,000 allowance.

Likewise providing tutoring services, translation services, walking dogs in your area, virtual personal assistant services or similar would fall into trading income.

Similarly, earning income from streaming on social media platforms (including the value of any items sponsors provide you for free), is likely to be considered to be taxable income by HMRC.

It is worth bearing in mind that the £1,000 allowance is in total across all side hustles, and not per additional source of income.

In terms of buying and selling items, or making items that you sell online, then if you are making a profit (that is, you get more income than you spend on buying or making) HMRC would generally consider that to be a trade, even if it feels more like a hobby to you rather than a side hustle.

How do you know if you have taxable side hustle income?

Speak to your accountant or tax adviser, or to our team and we can help you assess whether HMRC would consider any income as being taxable.

Alternatively, HMRC has an informative simple guide that can be found here.

If your income is taxable, you’ll need to register for Self-Assessment with HMRC and submit a tax return each year.

You may also need to disclose past years, if you have been doing this for a while.

What if I need to make a disclosure for past years?

There are several ways you can make a disclosure to HMRC about tax you have missed in the past.

Which route you take will depend on what has happened and where in the world your income comes from.

For most people who need to make a disclosure in relation to a side hustle, the Digital Disclosure Service will be appropriate, more information can be found here.

Depending on the circumstances, and if the amounts are large, and in particular if you have breached the VAT threshold for a number of years, it may be that the Contractual Disclosure Facility (CDF, sometimes also known as COP9) that is required.

The CDF is used for serious cases, where a fraud has occurred (i.e. you knew you should tell HMRC, but chose not to, or you deliberately under-reported your income).

The advantage is that if accepted into COP9, HMRC undertakes not to commence a criminal prosecution.

COP9 is not appropriate for non-fraud cases, or cases of a simple mistake or misunderstanding.

If you are resident in the UK, but your income derives from outside the UK, it may be that the Worldwide Disclosure Facility (WDF) is the right mechanism to disclose.

More information on this disclosure route is available here.

How can we help?

If you have realised that you need to tell HMRC about income, or if HMRC has written to you, we can help.

As a team we have decades of collective experience helping people make disclosures to HMRC of previously unreported income or helping with responding to HMRC if HMRC open enquiries or ask questions.

We specialise in disclosures and enquiries, and we can calculate the tax owed, as well as argue for the lowest reasonable penalty and/or period of time, depending on your circumstances.

You can get in touch with our friendly and experienced team on: 0203 675 8122 or email info@intaxltd.com.

inTAX is a specialist tax disputes firm. We deal with disclosures, investigations, and tax enquiries of all descriptions, including COP9, fraud investigations, VAT fraud, tax avoidance, let property disclosures and tribunal appeals. However, we don’t just deal with the serious end of tax investigations; we are also happy to handle smaller enquiries, disputes and problems that can be equally as worrying for our clients.