Earlier this month, HMRC introduced new rules for online marketplaces, requiring them to collect and report seller information and income to HMRC. Inevitably, this caused concerns amongst not only individuals with side hustles, but those who resell their ‘pre-loved’ items on platforms such as eBay, Depop and Vinted.
Fear not though, as little has actually changed. If you have a second income stream (side hustle), your Self Assessment tax obligations remain the same. Similarly the rules regarding reselling second hand items have not changed either.
However, there are some details that we feel side hustlers should be made aware of in order to avoid any tax dramas. In turn, it will be a good opportunity to refresh yourself on any tax obligations for a side hustle. So, stick with us while we break down the intricacies of tax for side hustlers.
What is a Side Hustle?
A side-hustle is something you may do in your free time to earn some extra cash, for example selling second-hand vintage clothing. Whatever it may be, it is not your full-time job and just something you like to do part-time!
The difference, however, is that the money you make from a side hustle is taxed differently to your full-time income from employment.
Do I have to pay tax on my Side Hustle?
Well, this depends on what you are earning.
Any earnings of less than £1000 within the tax year from your side hustle is not considered taxable income and you are liberated from the worries of Self-Assessment. That’s £1000 of sales, not profit: if you spent £1000 on items that you then sell for £1500, that counts as £1500 of sales even though you’re only £500 better off.
Also, a side hustle is something you’re doing to earn cash. If you sell something on Vinted that you bought to wear then you’re not earning money, you’re just getting back a bit of what you paid for it. Therefore, if you’re simply reselling your unwanted items, then it’s unlikely that you will have any ‘earnings’ to pay tax on.
Unfortunately, if you are earning more than £1000 in your spare time, you will have to declare it. But don’t worry, we have you covered with a step-by-step guide on how to pay it.
Remember that the platform you sell on will have told HMRC how much you’ve sold, so if you’re over the £1000 limit they’ll be expecting you to be in touch.
How do I pay my Side Hustle Tax?
If you earn over £1000, you will need to file a Self Assessment tax return to declare your extra income.
Income tax works on ‘tax years’ which runs from 6th April one year to 5th April the next (for complicated reasons involving Julius Caesar and the Pope – don’t ask!). You need to keep records for each tax year, and if you need to do a tax return you have to notify HMRC by 5th October after the tax year ends (only for the first year).
If you are registering for the first time, you will be required to follow the five step process below:
If you are registering for the first time, you will be required to follow the five step process below:
Start by choosing your own business structure. You will normally be a sole-trader, unless you’ve set up a limited company or other business structure. These can have different advantages and disadvantages, so if you’re looking to grow your side hustle into a bigger business we’d advise you to do some research before deciding which best suits you.
Next, you will need to notify HMRC that you are self-employed which can be completed here.
Once registered, you will need to . This is so HMRC can calculate your tax liabilities.
Following on, you will receive a Unique Taxpayer Reference (UTR) within 10 days of completing your self-assessment.
Utilise your UTR number to establish a government gateway account, enabling you to submit your tax returns online.
Your tax return for each year needs to be submitted by midnight on 31st January, which gives you nearly 10 months to work it all out. To avoid falling short of any unexpected tax obligations, please reach out to one of our team!
And there you have it! You are ready to pay your taxes. Please be aware that not paying your side hustle tax may result in fines from HMRC. Additionally, late tax payments can raise interest which will accumulate to a higher sum. But don’t worry, we are here to help you with any concern you should have so please reach out to a member of our team for guidance.
The arrival of January can only mean one thing – the countdown to Self Assessment is ON. With just a few weeks left to file and pay your personal tax return by midnight on 31st January, we thought we’d share some of our key tips to help navigate the deadline.
Self Assessment may seem like an intimidating prospect if you haven’t started yet, but you’re not alone. HMRC data showed that 49,317 people filed their tax return over the New Year bank holiday! However, if you didn’t kick off 2024 with a completed tax return by your side, don’t worry – we’re here to help.
Understanding Self Assessment
Self Assessment is the Government’s income tax collection system, typically used by taxpayers who are selfemployed, landlords or classed as a high earner. If any of the following applied to you between 6th April 2022 – 5th April 2023 (the 2022/23 tax year), then you will need to file and pay tax via Self Assessment:
you were self-employed as a ‘sole trader’ and earned more than £1,000 (before deducting anything you can claim tax relief on)
you were a partner in a business partnership
you received rental income in excess of £1,000
you had a total taxable income of more than £100,000
you have to pay the High Income Child Benefit Charge.
There are also some other circumstances which may mean you need to file a tax return, such as:
tips and commission
income from savings, investments and dividends
foreign income.
Are your records accurate?
The key to a smooth Self Assessment deadline is confidence in your own records from the tax year – HMRC could impose penalties for any errors they identify! If you have up-to-date, organised records of all your financial information, then filing a tax return shouldn’t bring any issues to the surface. Don’t forget, our team is on hand to help ensure that your records are completely accurate.
Don’t forget to claim for expenses where possible
Can you save tax on some expenses from the past year?
For example, if you’re self-employed, then don’t forget to calculate your total allowable expenses for the tax year and add these to your Self Assessment tax return. These must be comprehensively documented and justified to ensure that you comply with HMRCs guidelines. Allowable expenses include :
office costs, e.g., stationery or phone bills
certain travel costs
some clothing expenses, e.g., uniforms
staff costs, e.g., salaries/subcontracting
things you buy to sell on, e.g., stock or raw materials
financial costs, e.g., insurance or bank charges
costs of your business premises, e.g., heating, lighting, business rates
advertising or marketing, e.g., website costs
training courses related to your business.
It’s important to note that if you claim the £1,000 tax-free ‘trading allowance’, then you are not able to claim allowable expenses as well. Therefore, a decision must be made about which route is more tax efficient for you and your business.
Landlords can also claim various expenses relating to the property or the £1000 property income allowance.
Worried about paying your tax bill?
If you’re worried about affording your tax bill, don’t let your finances get out of hand or risk penalties for late payment. Whilst you may not be in a position to make a part or full payment by 31st January, you may be able to enter into a Time to Pay arrangement. This will allow you to pay off your latest Self Assessment tax bill in instalments.
Something to consider…
You may want to consider a Budget Payment Plan ahead of the next Self Assessment deadline. This allows you to make monthly or weekly payments towards your next tax bill, so that you’ll have less to pay when the deadline comes around. To use the Budget Payment Plan, you must be up to date with your previous Self Assessment payments.
At Fiander Tovell, we’re on hand to help you navigate Self Assessment as smoothly as possible. For further advice, please do not hesitate to get in touch with a member of our team on 023 8033 2733.
