Considering 40% of Brits are working on a side hustle alongside their main job, it is now more essential than ever to be up to date with the latest tax rules. Yes, an extra income stream comes with lots of perks but it also comes with responsibility. Responsibility to stay on the right side of law when it comes to taxes for example. With news of the new data sharing rules just in, let’s discuss the current side hustle tax rules and how you can be sure you are sticking to them.
What is a Side Hustle?
Before we dive into the complexities of side hustle tax rules, what exactly classes as a side hustle these days? Put simply, it is any hobby or activity that you monetise alongside your full time job. It could be anything from being a PPC Freelancer to dog walking on a weekend, using your skills to make some extra cash being a freelance SEO consultant or even renting your home on Airbnb. It doesn’t matter if you earn a few pennies or a few hundred pounds, if you are making any extra cash, you have a side hustle. But is your side hustle classed as a business and what are the tax rules attached?
You may not even realise you have a side hustle but those clothes you list on Ebay, Vinted and Depop? Yes, you guessed it. It’s a side hustle. These small sales might not be enough to put you in jeopardy of a fine, but they could add up over time and push you into a higher tax bracket without your knowledge. As the cost of living rises, more and more people are using their spare time to increase their income but many people could be breaking the rules by being ignorant to tax rules.
Do I Need to Declare my Side Hustle?
The basic rule when it comes to making a second income is to declare it. Recent changes mean it is more important than ever to inform the HMRC about any extra income you are making if it exceeds £1000.
So What’s Changed?
Of course, HMRC has always had ways to spot tax discrepancies but recent changes mean that tax payers are under much higher levels of scrutiny. The introduction of AI technology means that the HMRC can hone in on more data, specifically on additional income that is being made alongside a full or part time salary. From the 1st January 2024, HMRC will have automatic access to personal details that inform the taxman of how much income you are generating from popular side hustle apps such as Uber, Deliveroo, Ebay and many more.
Companies such as Airbnb and PayPal have always had to disclose information about their customers surrounding bank details and income but this will become commonplace for a range of companies including freelance sites like Fiverr. But how will this be enforced? HMRC is investing 3.9 million in creating a specialist team to deal with income generated by side hustles and shining a spotlight on how this income is reported. If their research finds that tax has been reported incorrectly, an investigation will be launched.
What Does this Mean for You?
To ensure you abide by the new tax rules surrounding side hustles, it is imperative that you track and document your earnings. This way you will know when you are close to reaching the earning threshold of £1000.
If your earnings fall below this amount, known as the Minimum Trading Allowance, you have no actions to complete. But what should you do if your side hustle income reaches and exceeds £1000 over the period of a year?
You must declare your earnings, file for self assessment and pay the income tax and national insurance payments associated with your total earnings. Failing to do so could mean that you incur a fine for failing to report your second income or get hit with a penalty.
If you are unsure about how to file for self assessment or have any questions regarding the process, you can find out how to register or pay your bill online. So, there you have it, a guide to the new side hustle tax rules and what they mean for you.
We’re not financial experts and can not advise on any HMRC related matters – we can just point you in the direction of the information you need to know to make sure you’re above board! Happy Freelancing!! ❤️