Side Hustle Tax: Should You be Worried?

The Organisation for Economic Co-operation and Development (OECD) made an important announcement regarding online trading reporting on the first of January 2024. Under the new legislation businesses worldwide are obligated to notify tax authorities of activity taking place through their platforms. HM Revenue and Customs (HMRC) will now have access to data on peoples earnings from digital services such as eBay, enabling them to check if reported incomes are accurate.

As an online seller, it’s important to understand the potential impact of the OECD’s announcement on your tax obligations. The bottom line is that this legislative change should not impact individuals who already correctly report their income on their tax return.

People who will be impacted by this are those who are not reporting profits from online selling or are underreporting revenues generated in this way. The aim of this legislation is to crack down on tax avoidance and by having this information HMRC will be able to check that all income is taxed correctly.

Not all sellers have to report their income due to the trading allowance of £1000 which means small volumes of sales do not have to be included in tax returns. Furthermore, sales made on these platforms will still have to meet the definition of a trade to be taxed meaning that simply offloading unwanted household items will not be suddenly liable to taxation.

One important consideration is the £1000 trading allowance. Since 2017 individuals are entitled to take an allowable profit of up to £1000 from trading profits and net property revenues without the need to report to HMRC. There is an obligation to report trading when revenues exceed £1000 but this still may not mean there is a tax liability as you can only be taxed on profits made. Individuals who run online stores through marketplaces need to be aware of this allowance as exceeding the revenue threshold has ramifications for reporting obligations.

If you currently have a side hustle that includes selling goods through these online marketplaces and your revenue exceeds £1000 in a tax year, then you should already be reporting this income to HMRC in your personal self-assessment tax return. Likewise, if you are a sole trader and already use all of your personal allowance, then any additional revenue generated through online selling will be liable to the standard income tax rates. Employees usually pay taxes on their income through PAYE, but running a side hustle is different. To pay taxes on side hustles, you’ll have to register as self-employed via HMRC and submit a self-assessment tax return.

When it comes to reporting income earned from online trading, it’s important to understand the process and requirements set by HMRC. If you make a large volume of sales through ecommerce then you should keep track of all transactions and profits/losses as they will be needed to file you personal tax return as well as ensuring that you are compliant with the UK VAT rules and file VAT returns if necessary.

Knowing the badges of trade is useful as they will help you determine if your use of online platforms does constitute trading or if you are just partaking in small personal use that does not generate any real profit.

Talking to an accountant from Sherwin Currid can help you ascertain where your particular situation falls and give you peace of mind that your tax is being reported truthfully. Furthermore, if you are a landlord that provides short term lets through Airbnb and other sites you need to start reporting income in a way compliant with Making Tax Digital (MTD) which Sherwin Currid can help you with. Having an accountant on your side can help you navigate the world of ecommerce as well as ensuring you are structured as a sole trader or limited company to minimise your tax bill.

If you have concerns or questions about side hustle tax, it’s beneficial to seek tax support and advice from professional accountants with experience in the sector. Experienced professionals can provide valuable guidance on various aspects of tax applicable to your side hustle, including:

• Advice related to tax regulations and compliance obligations.
• Assistance in understanding tax implications for different side hustle activities.
• Guidance on business expenses and deductibles, optimizing your tax position.
• Tax support services catered specifically to the unique needs of side hustlers, helping them navigate tax complexities and make informed decisions about their tax obligations.

Provided you are already operating as you should there should be no change to your earnings from ecommerce. Tracking your sales and accurately reporting are more important now as failure to report all income may be noticed by HMRC and lead to an investigation.

If you have not been reporting revenues from online marketplaces such as eBay, Vinted and Depop then it is vital that you look at the legislation surrounding profits and revenue from online sales and alter your practices so that you become compliant.

Failure to report revenue is now more likely to be noticed by HMRC due to them having access to all data on sales meaning they can calculate how much tax should be due, therefore you should ensure compliance to avoid fines and costly legal expenses.

The most important take away is that there are no new rules for individuals, the change is purely one that allows HMRC to ensure online businesses are paying the correct amount of tax and are not attempting to avoid tax.

For more information have a look at the services we offer to ecommerce sellers.