Whenever you log into Facebook or scroll through LinkedIn, it seems there’s always someone new asking you to ‘like’ their new page or ‘share’ their new hustle.
Having a side hustle in the UK has become increasingly popular as people seek to diversify their income and pursue their passions. With the rise of different functions on digital platforms, such as the launch of TikTok shop, Vinted and the increase in use of Facebook Marketplace, it’s easier than ever to monetise skills and hobbies.
Add to that the rise in social media usage over recent years for both businesses and individuals, especially during the pandemic and beyond, and you have the means to promote your side hustle to thousands of people at the touch of a button.
Side hustles can supplement regular income, making it easier to save, invest, or pay off debts, especially as many feel the pinch during the cost-of-living crisis.
There are various options for side hustles, from freelance work to selling handmade crafts online. This extra income can provide a financial safety net and increase financial resilience, particularly in uncertain economic times.
However, it’s crucial to be aware of tax obligations and to ensure your side hustle complies with relevant regulations to avoid any legal issues.
Here’s everything you need to know about having a side hustle and any tax you will need to pay on it…
Do I need to pay tax on my earnings?
Selling online has risen in popularity over the last couple of years, with some turning their sales knowledge into a fully-fledged career. Selling clothes, trinkets and unwanted gifts on platforms such as eBay, Vinted and Depop can make you some extra disposable income pretty easily. That could be next year’s summer holiday paid for, just by decluttering and selling your unwanted belongings!
If you’re reseller, you can earn up to £1,000 a year selling items online without having to worry about tax as this is covered by your Trading Allowance. If you make more than this amount, you need to be aware of your tax obligations to avoid potential HMRC investigations and penalties.
Additionally, you may want to earn extra income through letting out a property on Airbnb to holiday makers, a spare room whilst you’re away or even a parking space you have close to the city centre.
If you have a side hustle, you may be worrying about the amount of tax you have to pay on your earnings. Luckily, thanks to the tax-free trading and property allowances, there is some leniency to the amount of tax you have to pay on income you receive.
If you earn more than £1,000 from renting out your property, it is worth looking at the Rent a Room scheme. Through this, there are different rules on tax for rental income.
So, what’s changing?
Recently, experts have been warning people about the implications of tax with your side hustle. Anyone who makes money from their hobbies or from selling items online could be hit with tax bills and fines unless they get their tax affairs in order.
New tax rules will be introduced on January 1st, which could see thousands of people who are earning an extra income being caught out by the taxman.
New regulations will require digital platforms such as Vinted, Uber, Airbnb and eBay to report information to the HMRC regarding the income of their users and sellers. Before this regulation was put in place, HMRC has been able to request this data at ad hoc from the platform, but it will now be given automatically and can be investigated if they are not paying tax on their earnings.
Anyone who earns less than £1,000 on side gigs in a tax year does not have to pay tax or declare this income, thanks to the Trading Allowance.
As mentioned earlier, the Rent a Room Scheme can help you earn more tax-free. If you let out furnished accommodation in your home, you can earn up to £7,500 before having to pay any tax on it.
When do I need to speak to HMRC?
Almost a third of UK workers have found ways to earn extra cash during the cost-of-living crisis, according to a recent survey.
If you earn even £1 above your annual allowances, you need to inform the taxman. You can do this by either contacting HMRC and changing your tax code, or by submitting a self-assessment tax return.
There are lots of people who are affected, including if you buy and sell clothes through online marketplaces, if you work as a driver or courier as a second income, if you sell homemade crafts and seasonal bakes through social media or if you rent out a holiday home.
What’s the difference between a job and a side hustle?
Put simply, a side hustle is what you do on the side of your “full time job”, your career or the job that you earn the most income from.
You could work full-time and sell items on Etsy that you make as a hobby. Or maybe you work part-time during school hours, then pick up freelancing work on the evenings around childcare. The difference between a job and a side hustle in the eyes of HMRC is how much you earn.
How do I register a side hustle in the UK?
When it’s time to register your side hustle with HMRC, there are a few steps you need to follow. It’s worth making sure you do this before 1st January. At the moment, there is no information on how the HMRC will use the information they receive from the different platforms, but it will probably involve a clampdown on those who are not paying what they should, and possibly result in fines too.
Registering your side hustle isn’t as difficult as you might believe:
First, decide on your business structure.
You have the choice between sole trader or limited company business structures, and both have their benefits.
Next, you’ll need to let HMRC know you’re self-employed. You can do this on the gov.uk website.
After you’ve registered with HMRC, you need to register for self-assessment. Your self-assessment tax return is used by HMRC to calculate your tax liabilities.
You’ll be sent a Unique Taxpayer Reference (UTR) in the post within 10 days of registering for self-assessment. Keep this safe; you’ll use it to submit your tax return.
Using your UTR number, set up a government gateway account so you can submit your tax returns online.
What happens if you don’t pay tax on your side hustle?
Paying income tax on any earnings over £1000 is the law, and if you don’t pay income tax on your side hustle, HMRC might fine you. Late tax payments can accumulate interest, so the longer you put off paying, the more you’ll owe.
If your side hustle is becoming a job rather than a hobby, and you’re finding your idea taking off and generating an income, well done! Not everyone can find income in their passion, so you’re doing a great job. Although having an extra income is nice, you do have to declare it to HMRC to keep out of any trouble from fines.
At Gorilla Accounting, we can help you manage your finances. We offer a fixed-fee package, no matter what your sector or turnover. Our pricing is transparent with no hidden fees or surprises. We also offer our Client Service Guarantee. Contact us before 3pm on any working day and you’re guaranteed to receive a response to your query that very same day or we’ll issue you with a £50 payment.
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