HM Revenue & Customs (HMRC) have been awarded new powers by the Government in a bid to cut off a potentially major source of unpaid tax – e-traders.
This means that many online sellers on platforms such as eBay, Vinted or Depop will need to keep a close eye on what they are selling and how much income they’re generating.
From 1 January 2024, HMRC now requires these platforms to monitor how much sellers make and report it. Operators could face large fines if they fail to do so.
Online selling is a popular way of earning extra income, so there are lots of people who could be affected by new regulations if they earn enough.
We’ll take a look at the tax rules surrounding so-called ‘side hustles’ and find out how you can avoid incurring a higher tax liability for having one.
The £1,000 rule
The £1,000 rule applies to those who are employed / receiving pensions, but also have an additional source of income.
This additional income stream is typically irregular and casual, for example:
- Freelance writing or designing
- Making and selling crafts
- Pet or house-sitting
Because the work is typically casual and may be paid cash-in-hand, many people don’t think about paying tax on their earnings, particularly when they first start.
Everyone in the UK has a £1,000 tax-free allowance on income that is additional to their core employment.
After this, you’ll need to register as being self-employed and submit a Self-Assessment tax return online to report your additional income and calculate your tax liability.
Completing a Self-Assessment
Self-Assessment is the system that HMRC uses to work out and collect income tax from those who do not pay through the Pay-As-You-Earn (PAYE) system.
You must submit it at the end of the tax year (5 April) to which it applies, before 31 January of the following year.
You must also pay your tax bill by 31 January of the next calendar year. For example, for the financial year 6 April 2023 to 5 April 2024, you must submit your return and pay your bill by 31 January 2025.
If you fail to submit a return by the deadline, you’ll be fined at least £100 – more for a day of over three months.
Going forward, all e-traders and other ‘side hustlers’ should keep a record of everything they sell and how much it is sold for. This will help you to know whether you need to pay tax on your earnings or not.
For further guidance and clarification on the rules surrounding tax, please contact our expert team today.