From 1 January 2024, popular platforms have been told by HMRC to record the income that individuals are making on their platforms and report it directly to HMRC.
Many people in the UK earn additional income from online selling on websites such as eBay, Amazon, Etsy, Fiverr, Upwork, Uber, Deliveroo, Uber Eats, Vinted etc. and HMRC is continuing to crack down on people earning income on these platforms. HMRC will be investigating and pursuing individuals who earn income from their activity on these platforms and don’t pay tax.
Tax authorities around the world are putting the gig economy platforms under increasing pressure to disclose income earnt on their platforms and HMRC in the UK is no different.
In this blog we’ll look at the gig economy and what the new rules mean to people who may have unreported income from such activities.
What is the gig economy?
The gig economy is often referred to describe the workforce of people engaged in freelance and side-hustle work.
In 2017, the CIPD released a report on the experiences of those in the gig economy. The report defined the gig economy as “participants who trade their time and skills through online platforms (websites or apps), providing a service to a third party as a form of paid employment.”
HMRC updated guidance on selling online and paying tax
HM Revenue and Customs (HMRC) has updated guidance that directly targets gig workers on its selling online and paying taxes’ rules.
The changes specifically target individuals selling products, services and freelance work on well-known digital platforms such as Amazon, Airbnb, Etsy, eBay, Uber, Uber Eats, Deliveroo, Etsy, Vinted, Fiverr, and Upwork.
HMRC have contacted a wide range of these platform operators requesting that these gig worker platforms record all income earned by individuals selling through these platforms and share this data with HMRC. These new reporting requirements were introduced on 1 January 2024.
HMRC’s goal is to reduce tax evasion and ensure all income is correctly declared with the objective of full recovery of taxes due by individuals operating on these platforms.
This is a very serious move by HMRC and it has allocated £36.69 million in investment to enforce these measures from the estimated half a million UK gig workers.
£1,000 tax-free trading allowance for additional income
UK regulations mean that all working individuals in the UK are subject to national insurance and income tax. But they also get a tax-free personal allowance before they have to start paying taxes to HMRC.
Money made through a side hustle on digital platforms and the gig economy will also be part of the above rules. However, if you are selling only a small amount of items on things like an online marketplace and earning extra income from them in addition to your main employment, then it’s worth knowing that you have a trading allowance of £1,000 a year for these activities. This trading allowance comes in addition to the personal allowance of £12,570. Those individuals earning more than £1,000 before deducting expenses through these sorts of activities trading, will need to declare and pay tax on this via self-assessment.
If you are only selling goods that are personal items and you don’t earn more than £1,000 from these sales, then you will not have to declare them or pay tax on them.
New tax rules for the gig worker
It’s essential to understand the impact of HMRC’s new tax rules and HMRC’s ability to collect and exchange information from online platforms on side hustles and gig workers. This will mean that an individual’s income from such activities even if it’s from multiple sources or platforms, will be traceable and HMRC will undoubtedly be looking to launch tax investigations on individuals who have not declared this income via a self-assessment tax return.
With HMRC now having direct access to collect information from platforms, they will have the ability to cross-check this data with the self-assessment system. This is now more likely than ever to lead to HMRC launching tax investigations more efficiently and effectively when income reported on tax returns does not match the records provided by online platforms. The changes seek to ensure that everyone contributing to the UK’s economy pays their fair share of taxes.
You must also remember that HMRC can investigate and cross-check additional income that may come from digital platforms or a side hustle through your bank account information. So, there really is no hiding space from HMRC!
Is my gig income taxable?
If the income you earn from gig economy platforms is regular, profitable and ongoing for a period of time, then it may well be taxable. This will depend on whether you earn income from other sources and if your total income is over the £12,570 personal allowance and/or if you earn more than £1,000 in a tax year from these other activities.
So, if you are in a full-time job and earn more than £1,000 from selling goods online in a tax year for example, you will be subject to income tax on the money you make selling the goods online.
One-time or casual work might be treated as miscellaneous income. HMRC provides guidance to determine if you’re engaged in self-employment or not.
Self-employed people are required to report and pay their own National Insurance Contributions (NICs) and Income Tax via a Self-Assessment tax return.
Record keeping for self-assessment tax returns
If you are engaged in side hustles or your main job is selling via online platforms, undertaking food delivery services, renting short-term accommodation, or operating private hire services in your car, then keeping accurate records is crucial.
The tax return includes sections for reporting self-employment income and expenses, and you may be asked to provide proof of these if HMRC decides to investigate further.
How to understand your tax obligations on gig activities or side hustles?
Tax obligations and rules are constantly changing and HMRC regularly shifts focus and targets specific industries or platforms. Navigating these new tax rules can be challenging and time-consuming and getting your tax compliance right is crucial to avoid penalties, interest and HMRC investigations.
Having a trusted advisor, such as dns accountants, who can help and give you tax advice across all your income sources, including tax implications of additional income from side hustles.
If the new rules apply going forward, do I need to worry about prior years?
Yes, you do need to worry. If you have been earning income from a side hustle for a number of years and HMRC launches an investigation on you, they can look back at past years. HMRC investigation time limits are as follows:
- If an innocent error is suspected, the time limit that HMRC can go back is 4 years
- Where mistakes in tax returns are deemed careless or negligent, the time limit is extended to 6 years.
- Suspicion of deliberate tax evasion extends the period of 20 years!
Why does HMRC compliance matter for side hustles and gig workers?
Ensuring your tax compliance is your individual responsibility. Being compliant is a legal obligation and if you fail to uphold this legal obligation, you can face, hefty penalties from HMRC, a tax investigation being launched by HMRC against you or even a criminal prosecution if tax evasion is suspected.
In this ever-changing world of side hustles and gig work, staying compliant with tax regulations is paramount. HMRC’s new tax rules have shown that they are focused on people undertaking side hustles and will be more directly monitoring income being earnt on these platforms.
The tax experts at dns accountants can help you navigate the complexities of UK and international tax regulations and ensure you are tax-compliant. With professional advice, you can ensure your side hustle is compliant and you can secure your income, without the worry of tax regulations not being met.
If you have been earning income from gig activities, then it is wise to begin to tackle your tax obligations now. Don’t wait until you’re facing a tax investigation or hefty HMRC penalties.
New regulations and rules are being constantly introduced by HMRC. There can be serious and expensive consequences for not abiding by HMRC rules. If you earn extra cash from side hustles, are self-employed and not sure what tax you need to pay, then contact dns accountants today. We can advise you if the money you earn is taxable, if you are tax compliant or if you need to make a declaration to HMRC contact us today on 03330 886 686, or you can also e-mail us at email@example.com.
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