HM Revenue & Customs (HMRC) is now using new powers granted to them by the Government to target a key area of tax evasion – online traders.
It is not uncommon for contractors and freelancers to have a side hustle on platforms like eBay, Vinted, or Depop.
However, if you use these platforms, you must now be vigilant about your sales and income generated from them and other additional income, such as short-term lets on sites like Airbnb.
This is because HMRC now mandates these platforms to track and report sellers’ earnings. Operators may incur significant fines for non-compliance.
Effective from 1 January 2024, these rules also encompass short-term rental platforms like Airbnb.
With online selling being a popular means of supplementing income, these new rules could impact many if their earnings exceed a certain threshold.
Understanding the £1,000 allowance
The £1,000 allowance applies to employed individuals with an additional income source. This extra income often comes from irregular and casual activities, such as:
- Freelance writing or designing
- Crafting and selling handmade items
- Pet or house-sitting
- Tutoring
As these jobs are usually casual and might involve cash payments, many overlook the need to pay tax on these earnings, especially at the outset.
In the UK, there’s a £1,000 tax-free allowance for income beyond one’s primary job. Beyond this, you must register as self-employed and file a Self-Assessment tax return to declare your additional income and determine your tax liability.
Implications of the new regulations
For some, these changes won’t impact their earnings if they remain below the £1,000 limit and those regularly earning well above this threshold are likely aware and consistently submit a Self-Assessment.
However, those with earnings in-between should monitor their income carefully to see if it crosses the threshold.
Many individuals with ‘side hustles’ unknowingly omit e-trading income from their tax declarations or fail to submit a tax return altogether.
Therefore, all e-traders and side hustle participants should meticulously record their sales and earnings. This practice will help determine whether you need to pay tax on your income.