Side hustle tax rules – HMRC is watching

We already knew that HMRC had significant resources to look for tax discrepancies. In some cases it has the power to check your personal bank accounts. It uses complex systems built on artificial intelligence to collect billions of items of data about taxpayers. And, very soon, side hustle tax rules will change so that the taxman will get access to information about people’s additional incomes.

What’s a side hustle?

In essence, if you earn money from an activity that’s not your main job, it’s a side hustle. Side hustles are becoming ever more popular, possibly because the cost of living is making it harder for many people to make ends meet.

There are lots of different ways people earn extra cash. Some will rent out properties to holidaymakers on sites like AirBnb. Others will rent out their driveways as parking spaces for commuters. Some will do creative things such as freelance design or copywriting. Still more will do shifts as food delivery couriers or work as a driver for companies such as Uber.

HMRC and the gig economy

New side hustle tax rules now make it easier for HMRC to learn about people’s secondary incomes.

From 1st January 2024, a wide range of apps and websites that facilitate side hustles have had to share user details with the taxman. These include bank account details.

Examples of the site and apps that need to report include AirBnb, Etsy, Deliveroo, Upwork, Fiverr and Uber.

Currently, some of these sites such as AirBnb already reported user income details to HMRC. However the new rules now make this an automatic requirement for many different organisations.

Enforcing side hustle tax rules

According to this report, HMRC is investing £39.9 million to crackdown on people not properly reporting side hustle tax obligations. There will be a specialist team of 24 people who will work to spot discrepancies between income from digital platforms and tax returns. Where there are grounds for doing so, HMRC will launch tax investigations.

Am I affected by the new side hustle tax rules?

If you have a side hustle, it’s vital to report and pay your tax accurately. You are allowed to earn up to a £1,000 per year from self-employment without paying tax. This is known as the Minimum Trading Allowance. If you earn more than that, you will need to complete a Self-Assessment Tax Return and pay any income tax and national insurance that you owe. Failing to do so can land you with major penalties and fines.

Given that it’s thought there are 7.25 million gig workers in the UK, the new rules now affect a lot of people.

What should I do next?

If you earn more than £1,000 per year from a side hustle, your first step should be to register for Self-assessment. We can help you do this if needed. Secondly, if you’ve earned money and have failed to declare it, you should do so. In this way you have a better chance of paying lower penalties. If HMRC discovers undeclared income via an investigation, you’re likely to be hit with a much bigger bill. Ask us for advice if you are in this position.

Last of all, if your side hustle is growing and you need advice on how to grow your business, talk to one of our accountants today. We have helped hundreds of small start-ups develop into established firms with turnovers of hundreds of thousands of pounds – and sometimes millions!