Whether you resell clothes on Vinted or rent out your spare room on AirBnB, HMRC's new side hustle tax rules could impact you. The gig economy is exploding. HR Magazine estimates that by 2025, nearly 50% of the UK's population will have a side hustle of some sort. In 2017, this number stood at under 10%. So it probably won't come as a shock that the government has decided to clamp down on the growing gig economy sector.
As of January 1st, 2024, new rules came into place that will make tax evasion on income earned via digital platforms much more difficult. It's expected that anywhere between two to five million businesses (including side hustlers) that sell goods or services via digital platforms will be impacted.
But what do the new rules mean for you? In this article we explore the announcement in more detail and explain how it might affect you.
What are the new side hustle tax rules
First off, there is no actual new side hustle tax. In reality, the only thing that is changing is the way data is shared between HMRC and non-UK-based digital platforms including AirBnB, Uber, Deliveroo, Vinted, UpWork and eBay among others. If these platforms want to operate in the UK, they'll need to report information to HMRC about sellers working with them. This could include income and bank account details as well as other information that allows HMRC to identify sellers and check that they're paying the right amount of tax on their earnings.
Why have the new side hustle rules come in?
These new rules are actually part of a joint Organisation for Economic Cooperation and Development (OECD) effort to allow tax authorities in participating countries to exchange information and improve international cooperation that ultimately limits tax evasion globally.
According to the OECD, the rules were developed because of the fast growing "digital economy" and "in response to calls for a global reporting framework in respect of activities being facilitated by such platforms, in particular in the sharing and gig economy.
"Activities facilitated by platforms may not always be visible to tax authorities or self-reported by taxpayers."
So, the amount of tax people owe hasn't changed due to these rules, but it's now become easier to track down people who may not have been paying the right amount of tax to start with.
While the rules came into force on January 1st this year, the first reporting deadline for digital platforms is not until January 2025.
Do the new rules impact occasional sellers?
Let's say you have a spring clean once a year and sell some of your old clothes on websites like Facebook Marketplace or Depop. Do the new rules mean you'll now need to pay tax on your "earnings"? Chances are, things won't have changed for you at all.
- If you're not selling for profit, then you generally won't need to pay tax - So, for example, if you bought a jacket for £80, wore it a few times, and decided to sell it online for £40, this won't result in a profit. While you'll get back some of the money you spent on the jacket, you won't have made any money on it, because the jacket cost more than what you sold it for. The same principle applies to selling old furniture on platforms like Facebook Marketplace or eBay.
- You won't be classed as a trader for "one-off" activities - HMRC's own guidance states that you need to sell goods or services online regularly to be classed as a trader who may need to pay income tax. One-off wardrobe clearouts won't typically qualify.
If you're still unsure, there's a helpful tool on the HMRC website to help you work out whether you need to fill out a self-assessment tax return and declare any earnings. The tool states that if you:
- Only sold personal possessions
- Didn't sell items you bought to make a profit
- Didn't sell any single personal possession for more than £6,000
Then you don't need to tell HMRC about it.
Where does the £6,000 figure come from? Your personal possessions may be classed as chattels. A chattel is a legal term for an item you can touch and move, such as furniture, paintings, and antiques.
You don't need to declare gains you've made from your personal possessions (i.e. chattels), unless you've made £6,000 on an item that's not exempt from Capital Gains Tax. So, in the example above, where you sold your jacket for £40, you wouldn't need to declare this as it's under the £6,000 limit.
Selling your personal possessions can sometimes result in a profit. If you sell a personal possession, excluding your car, for more than £6,000, then you'll need to work out your gain and potentially pay Capital Gains Tax on it. But this won't apply to most people selling the occasional mirror or old lampshade on Facebook marketplace.
Side hustle owners: How do the new rules impact you?
As we discussed, the new rules don't actually change the amount of tax you owe. But if you plan on starting a side hustle, it might be worth looking into the tax implications before committing.
Let's say you have a side hustle where you regularly buy clothes and other items to resell for profit on platforms like Vinted and Depop. Or maybe you drive for Uber. The good news is, that you'll normally get a £1,000 trading allowance. This means your side hustles are exempt from tax on earnings up to £1,000 per year excluding tax.
There may come a point where you need to declare your income and pay tax on it.
What if I make more than £1,000 per year from my side hustle?
If you make more than £1,000 per year from your side hustle, you'll need to register for Self Assessment and submit a tax return. There are also certain records you may need to keep to evidence your income. These can include things like:
- Invoices
- Spreadsheets of income receipts
- Bank statements
- Email confirmations of payments
Then, depending on your income, you might need to pay tax. You'll still get your personal allowance of up to £12,570 per year (if applicable) on top of your trading allowance. You will generally need to pay tax on income above that.
What if I want to claim expenses on top of my trading allowance?
You can't claim expenses on top of your trading allowance. Once your side hustle gets going, you might find it makes more sense to claim expenses rather than make use of the trading allowance.
This is because certain allowable expenses can be deducted from your tax bill. These can include things like:
- Items you buy to sell on
- Office costs like stationary
- Training courses
Your taxable profit (i.e. the money you're taxed on) is your turnover minus your allowable expenses.
Let's say you're a clothes reseller on Vinted. You sold £5,000 worth of stock, but your expenses amounted to £3,000. In this case, it might make more sense to declare your expenses. If you do so, you'll be taxed on your £2,000 profit. On the other hand, if you used your trading allowance of £1,000, you would be taxed on the remaining £4,000.
Is it worth starting a side hustle in 2024?
If you're feeling discouraged by the recent news about side hustle taxation, it's worth remembering that not much has actually changed. The amount of tax you owe won't change as a result of these new rules. The only difference is the government will have a clearer picture of people's incomes moving forward. So if you weren't planning on evading tax, the new rules will have no impact on you whatsoever. So don't let the new rules put you off your side hustle idea if you were excited to get started.
