How does the 'Side Hustle Tax' impact on your clients?

You'll likely be aware of the introduction of a so-called 'Side Hustle Tax'. On January 1, 2024, HMRC announced new regulations requiring online selling platforms such as eBay, Depop, and Vinted to report information.

Confliction information and a media frenzy have left many online sellers questioning the impact on their pockets. Some people believe that earning additional money will increase their tax liability. However, this is not true for most online sellers.

Our guide will equip you with the information you need to speak to your clients participating in or considering starting a side hustle. We'll examine what's changed, cut through the noise, and get to the facts.

What has changed for those with a side hustle?

The most noteworthy change to the ‘side hustle’ economy in the new rules revolves around how information flows between online platforms and HMRC. Traditionally, only particular individuals above a certain income threshold had a responsibility to report their side hustle income. 

Now, platforms like Vinted, eBay, and Airbnb are themselves tasked with collecting and sharing detailed information about transactions and earnings directly with HMRC.

This will affect platforms in some of the following areas: 

• Resale Platforms (Vinted, eBay, Etsy)

• Short-Term Accommodation (Airbnb)

• Freelance Work Platforms (Upwork, Fiverr)

• Food Delivery (Uber Eats, Deliveroo)

This is not all, though. The reporting obligations apply to all registered sellers on platforms, with some exemptions: those with fewer than 30 transactions a year and earning no more than 2,000 euros.

These changes aren't confined to the UK alone. They are part of a broader global agreement orchestrated by the Organisation for Economic Cooperation and Development (OECD). The objective of these is to create a more interconnected system, allowing tax officials to seamlessly share information across borders.

Regardless of your position, it's important to bear in mind that these changes primarily impact the reporting process, not the fundamental tax obligations. This means that if you meet the requirements for Self Assessment, the reporting process remains largely the same.

Mythbusting the ‘Side Hustle Tax’

So, contrary to what you might have read, there's no shiny new 'side hustle tax.' The essence of the change is not about imposing additional taxes on individuals but enhancing transparency.

In any case, profits must be realised for tax to be payable. And, as mentioned, the trading and property allowances allow taxpayers to earn up to £1,000 a year of gross income before any tax obligation arises. 

How will it affect the future of online selling?

While the future of online selling is never easy to predict, the recent changes in reporting requirements are unlikely to deter individuals from engaging in their side hustle. Despite concerns, like with the ‘side hustle tax’, that may arise due to misinformation, there are no new tax burdens.

As long as sellers adhere to existing tax rules, the impact of these changes on their activities is expected to be minimal.

That being said, there is a chance that the increased visibility that tax authorities gain through these changes may contribute to an amplified focus on compliance. Particularly, this could apply to those who have been trading but not accurately reporting their income to HMRC.

Don’t let these tax changes stop your side project

As ever, it’s crucial for anybody engaging in buying or selling to adapt to each new regulation that comes into place.  Those staying informed are most likely to continue complying with tax authorities and thriving in the online selling space. 

Looking to start a side hustle of your own? Take a look at our handy guide on starting side hustles for all the tips you’ll need to begin. 

Side hustle tax changes - the verdict

If you clients are side hustlers, there’s little to fear from the recent changes to financial reporting rules. However, as before, sellers need to continue remaining tax compliant. 

Quickbooks can help you in this process. Our intuitive self-employed accounting software to streamline transactions and track business performance on the go. With features like automated expense management, tax calculation, and innovative tools like a mileage tracker, it simplifies tax preparation for Self Assessment returns.

Get in touch with us today to see how we can help.

Side hustle tax FAQs

What is meant by ‘side hustle’?

A side hustle is a flexible job pursued in addition to one's primary employment, typically done to generate extra income, explore creative interests, or achieve specific financial goals.

It is often undertaken outside regular working hours and can serve various purposes. These may include paying off student loans, supplementing a full-time income, fostering financial independence, or providing a creative outlet.

What's the difference between a full-time job and a side hustle?

The difference between a full-time job generally entails a substantial time commitment, serving as the primary source of income with job security. In contrast, a side hustle is pursued alongside a full-time job, providing additional income and often allowing individuals to explore creative interests or meet specific goals.

Do you have to pay taxes on a side hustle? 

Initially, in the UK, you don't need to declare the first £1,000 earned from a side hustle, thanks to a policy introduced in April 2017. 

However, it's crucial to maintain accurate records of income and expenses. Once your earnings surpass £1,000, you must create a legal structure, typically as a sole trader, and register with HMRC before October 5th of the following tax year.

Delaying registration may result in fines, so prompt action is recommended.

How do I pay any tax due from my side hustle?

If your side hustle generates more than £1000 in a tax year, you'll need to fill out a Self Assessment tax return for this additional income.

For more information about how to fill in this return, explore our how to do a Self Assessment guide. 

Do I need to register my side hustle as a business?

Yes, it is essential to register your side hustle as a business. Firstly, you’ll need to decide on your business structure (e.g., sole trader or limited company. Then, you’ll need to register as self-employed with HMRC, obtaining necessary insurance, choosing a business name, and ensuring compliance with regulations.

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