There are now more ways than ever for people to make a bit of extra cash on the side. But HMRC is on to you, and it’s essential that everyone stay informed about the latest tax regulations.
HMRC has always been vigilant in its pursuit of tax discrepancies. However, significant changes are on the horizon that will impact those who engage in side hustles. Read on to find out how this could affect you.
What Is a Side Hustle?
A side hustle is a source of income separate from your primary job. In an era marked by the increasing cost of living, many individuals turn to side hustles to make ends meet. These secondary income streams take various forms, such as renting out properties on platforms like Airbnb, offering driveway spaces for commuters, engaging in freelance work like design or copywriting, or working as food delivery couriers or Uber drivers.
HMRC’s Pursuit of Side Hustle Income Information
Digital platforms that facilitate additional income, such as Etsy, Fiverr and Upwork, are now under scrutiny by HMRC. These platforms will soon be required to provide user information to the tax office, including bank account details.
While HMRC already possesses the authority to request income data from UK-based apps and websites, the situation becomes more complex with platforms headquartered overseas. To address this challenge, HMRC has joined forces with the Organisation for Economic Co-operation and Development (OECD). Under this collaboration, HMRC can investigate the tax affairs of individuals earning income through foreign-based companies. Information-sharing agreements with other participating tax authorities will help ensure compliance with tax obligations. As of November 2022, 28 countries and jurisdictions had signed up to the OECD rules.
The Impact of New Rules
These forthcoming side hustle tax rules, due to come into force on 1st January 2024, aim to enhance HMRC’s oversight of secondary incomes. Apps and websites that facilitate side hustles will be mandated to share user details, including bank account information. This requirement will streamline the process, making income reporting an automatic obligation for various organisations.
Enforcing the Rules
To ensure compliance with the new side hustle tax rules, HMRC is committing £39.9 million to intensify efforts in cracking down on those who fail to report their secondary income accurately. A specialised team of 24 experts will work diligently to identify discrepancies between income reported on digital platforms and tax returns. Where sufficient grounds exist, HMRC will initiate tax investigations.
Am I Affected by the New Side Hustle Tax Rules?
If you engage in a side hustle, it is crucial to report and pay your taxes accurately. The Minimum Trading Allowance allows you to earn up to £1,000 per year from self-employment without incurring taxes. However, exceeding this threshold requires completing a Self-Assessment Tax Return and settling any income tax and national insurance obligations. Failure to comply can lead to substantial penalties and fines.
With an estimated 7.25 million gig workers in the UK, these new rules are poised to impact a significant portion of the population.
You should register for self-assessment tax if, in the last tax year:
- Your income from self-employment exceeded £1,000.
- You received more than £2,500 from property rentals.
- You earned more than £2,500 in untaxed income.
- You received a P800 from HMRC indicating insufficient tax payment last year.
- You need to prove your self-employment status for purposes such as claiming Tax-Free Childcare.
- You wish to make voluntary Class 2 National Insurance payments to qualify for benefits.
What Should I Do Next?
If your side hustle generates more than £1,000 per year, your first step should be to register for Self-Assessment. Our team at DabHand Accounting can assist you with this process if necessary. Additionally, if you have earned income that you have not declared, it is advisable to rectify this promptly. Doing so increases the likelihood of facing lower penalties. HMRC may impose significantly larger bills if undeclared income comes to light during an investigation. Feel free to seek advice from us if you find yourself in this situation.
Lastly, if your side hustle is expanding, and you require guidance on growing your business, our experienced accountants are available to assist you. Over the years, we have aided numerous small startups in developing into established firms with turnovers ranging from hundreds of thousands to millions of pounds.
Make Sure to File and Pay on Time
Punctuality is crucial when it comes to tax obligations. The deadline for filing a paper tax return is 31st October. Both online tax return filing and payment are due by 31st January. Missing the filing deadline results in an initial £100 penalty, increasing to £10 per day (up to 90 days) after three months. Additional penalties apply for returns more than six or twelve months late.
Furthermore, late payment charges accrue if your tax bill remains unpaid beyond 31st January. Daily interest, currently at 7.75% (Bank of England base rate plus 2.5%), applies from the payment’s due date. Further penalties may be imposed for significant delays in paying your tax bill.
If you have concerns about submitting your tax return or settling your bill, don’t hesitate to contact HMRC.
If you are concerned about tax compliance, contact DabHand Accounting today for a free consultation.