From 1 January 2024, HMRC has new powers to investigate the tax affairs of people earning money from so-called ‘side hustles’ online.
The number of people seeking income streams outside their main form of employment has risen dramatically in recent years, driven largely by the growth in opportunities to earn money online.
Stats suggest that one in three workers in the UK have confirmed multiple incomes, with around three in five considering extra sources of income in 2023 to combat the rising cost of living.
This has coincided with a spike in tax avoidance that has caused a real headache for HMRC. Many people are simply failing to declare additional incomes, especially those in employment who may not even be aware of the self-assessment tax rules for any earnings outside the scope of PAYE.
Another issue for HMRC has been limitations on its powers to investigate or even learn about many of these instances. UK-based online platforms that allow people to earn money have long been required to share user details with HMRC. This includes financial data, which HMRC uses to target tax avoidance and make the correct Income Tax calculations.
But the digital economy is a global economy, and many of the platforms that allow people to earn money online are based overseas. HMRC has had no jurisdiction over these. Up until now.
The UK has now signed up to an information-sharing arrangement through the Organisation for Economic Development (OECD) which gives HMRC the power to request data on UK residents using platforms operating from 27 other countries.
The agreement covers platforms offering accommodation, transport and personal services. Examples of people impacted include those offering holiday home rentals via an overseas website, delivery drivers, people selling items on marketplaces, and freelancers and content creators of all types, including social media ‘influencers’.
Under UK tax law, all earnings are subject Income Tax and must be declared to HMRC. If you are in employment, Income Tax is calculated and paid at source through the PAYE system. Any income earned outside of employment, regardless of its source, must be accounted for via the self-assessment system.
The main exception to this is that you are allowed to earn up to £1,000 outside employment before declaring it to HMRC. This is known as the trading allowance. While it is in effect a business allowance for self-employed workers, it also covers small earnings people might make from selling unwanted items etc.
So if you make £1,000 or less from your side hustle per year, the extension of HMRC’s powers will not effect you. Regardless of the platforms you use, if you are within the trading allowance, you do not need to make a declaration and will not have the finger pointed at you for tax avoidance. The trading allowance applies to everyone no matter how much they earn from their main employment.
If you do earn in excess of £1,000 from additional sources of income, you should register for self-assessment if you have not already done so. If you don’t register and submit a tax return, you could be fined for breaking tax rules.
For further information, get in touch with the Xeinadin tax team.