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What is the 'Side Hustle Tax'?

Wednesday 13th of March 2024

HMRC Has announced that from 1st January 2024 firms including Vinted, Airbnb, Depop and eBay are obligated to collect and share details of transactions with the tax authorities. Under the new rules, digital platforms will routinely report the income sellers are getting through their site and will apply to the sales of goods. Previously HMRC relied on individuals self-declaring their extra income made from these sites.

When individuals earn income from a side hustle, they are responsible for reporting that income on their tax returns and paying any applicable taxes on it. This includes federal income tax, state income tax (if applicable), and self-employment tax if the individual is considered self-employed. Self-employment tax covers Social Security and Medicare taxes that are typically withheld from paychecks for traditional employees.

Why have they introduced this new rule?

HMRC have introduced this new law as part of their clamp down on tax dodgers. People making a ‘side hustle’ online are among those who could end up paying tax on their earnings under the new tax clampdown. 

HRMC said: ‘These new rules will support our work to help online sellers get their tax right the first time. They will also help us detect any deliberate non-compliance, ensuring a level playing field for all taxpayers.’

What is required and will I be affected?

The tax threshold, or self-employed trading allowance for extra income sits at £1,000. Failure to report income that amounts to more than £1,000 could ultimately result in tax bills and penalties. 

Individuals with side hustles need to keep accurate records of their income and expenses related to their additional work, as these can affect their tax liability. Additionally, depending on the amount of income earned from the side hustle, individuals may need to make estimated tax payments throughout the year to avoid penalties at tax time.

Do I need to register for self-assessment tax returns?

It’s important that you understand when you are required to register for a self-assessment, and you should always be mindful of the thresholds. You will need to register for a self-assessment if -

-Your income from self-employment work was more than £1,000

-You earned over £2,500 from a rental property

-You earned more than £2,500 in untaxed income

-You received a P800 from HMRC explaining that you owe tax

-You need to prove you’re self-employed.

Not sure what to do?

If you’re not sure what to do next, then get in touch with your accountant. Your accountant will be your best friend during this new update and will ensure that you do not face any penalties. 

If you need further help, then get in touch with us today, and one of our accountants can advise you further.  

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