What does the so-called ‘Side Hustle Tax’ mean for you?

What does the so-called ‘Side Hustle Tax’ mean for you?

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:

  1. 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.  
  2. Next, you will need to notify HMRC that you are self-employed which can be completed here 
  3. Once registered, you will need to . This is so HMRC can calculate your tax liabilities.  
  4. Following on, you will receive a Unique Taxpayer Reference (UTR) within 10 days of completing your self-assessment.  
  5. 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.