In a move that could affect thousands across the UK, HM Revenue & Customs (HMRC) is tightening the restrictions on those who earn additional income through side hustles or rentals.
With the new legislation coming into effect from 1 January 2024, it is crucial for those who earn extra income to understand the upcoming changes to avoid potential penalties and tax bills.
What are the new rules?
Starting from 1 January 2024, digital platforms such as eBay, Etsy and Airbnb are required to report users’ income to HMRC.
Prior to this, HMRC could only request such data on an ad-hoc basis.
However, the new legislation mandates automatic sharing of this information.
The scope of this change is extensive, impacting various platforms, both domestic and international, including Vinted, eBay, Depop, Etsy, Uber, Airbnb and JustPark.
This will affect a wide range of people, from holiday rental hosts to online sellers and delivery drivers.
The legislation, named “The Platform Operators (Due Diligence and Reporting Requirements) Regulations 2023”, aims to bring UK tax law in line with modern trading methods.
Who must pay tax?
Whether or not you have to pay tax depends on if you are categorised as a “trader”, and how much income you generate. Generally, if you buy and sell online with the intent of making a profit, you will likely be considered a trader.
There is a £1,000 trading allowance for additional income earned in a tax year, which means if you earn less than this, you do not have to pay tax or even declare this income.
If your income exceeds this limit, you will need to complete a tax return.
If you are renting out furnished accommodation in your home, you can also take advantage of the £7,500 tax-free rent-a-room scheme. However, exceeding these allowances by even £1 requires you to inform HMRC.
How can you pay the tax?
If you discover you need to file a tax return for income earned in the 2022-23 tax year, you should have registered for Self-Assessment by 5 October 2023.
Nevertheless, if you are not yet registered, it is best to do so as soon as possible.
The deadline for online tax return submissions and tax payments is 31 January 2024.
You can pay your tax through various methods such as online banking, debit card or even by posting a cheque.
However, you generally cannot pay this extra tax through your PAYE, it needs to be done via self-assessment.
The forthcoming HMRC rules are set to bring significant changes to how income from side hustles and digital platforms is reported and taxed.
As these changes are just around the corner, now is the time to get your tax affairs in order.
Failing to do so could lead not only to unexpected tax bills but also to hefty penalties.
Do you need tax advice for your individual circumstances? Get in touch today.
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