How new tax rules could impact your side hustle profits

Selling items or seeking alternative income online has grown in popularity in recent years. As the cost of living crisis continues, people have started selling old items, offering out a spare room, carrying out part-time food delivery work or even selling handcrafted goods online to generate additional income.

But previously, it might not have been thought of as additional income, or referred to as a regular side hustle. However, things have now changed as from this month, firms like eBay, Vinted, Etsy and Airbnb must now collect details of its users and share them with HMRC directly. 

So however you make additional income through online ventures, it’s important you understand the new tax rules that came into force on January 1, 2024. 

What are the new rules?

The new rules are actually aimed at online sites and apps in the first instance. 

Kicking off this year, but with the first date for firms to report this information being at the end of January 2025, it’s important to be aware of what’s being shared and what you need to do. 

HMRC have set out their new rules, which now go beyond HMRCs existing power to access information from UK-based platforms. Under the Organisation for Economic Co-operation and Development (OECD) rules, digital platforms in participating countries that facilitate the sales of goods, short-term accommodation lettings, food delivery services and more will now be required to share information with HMRC. This includes tax IDs, bank account details, the number of sales and the amounts made by its users. 

What does this mean for my side hustle?

While these are new rules for digital platforms primarily, we’re always responsible for our own tax obligations, and that’s not changed. But with the introduction of the new rules, it’s more important than ever to be aware of what they are, particularly if you don’t already keep a clear record of any additional earnings. 

We all have certain allowances each tax year before we need to pay tax. 

You can earn up to £1,000 through property - such as renting out a spare room through Airbnb - without needing to pay any tax on it. 

You also have up to a £1,000 allowance on other income streams too, such as selling second-hand items, selling handcrafted items or offering your services for a fee. 

That means that so long as your earnings don’t exceed these tax-free allowances, you don’t need to do anything. This is why it’s important to keep a clear record of your income, whether it’s a regular side hustle or an annual clear out.

If your sales exceed these amounts in a given tax year, then you’ll need to do a tax return. This involves filling in a form online or requesting a physical form from HMRC directly. If it’s your first time, you’ll need to register for Self Assessment first. You can do this online and it can take some time as HMRC will need to issue you with a Unique Taxpayer Reference (UTR) before you can submit your tax return. 

HMRC set a deadline of October 5, 2023 for you to let them know you need to complete a tax return. If you’ve missed this deadline, then contact HMRC as soon as possible.

The amount of tax you might owe will depend on your personal circumstances. A general rule of thumb is that you will pay tax on any profits made over any tax-free allowances. Profit is any money made after you deduct any allowable expenses. The rate of tax you’ll need to pay will depend on your income tax band.

Remember, these new rules came into effect on January 1, 2024, so if you think you might need to fill in a tax return for 2023/24 then it’s a good idea to contact HMRC sooner rather than later.

If you're not sure whether you need to tell HMRC about additional income, you can check using their online form.

What should I do next?

The main thing to remember is to keep a clear record of any additional income you make, side hustle or otherwise.

The new rules aren’t designed to catch you out, but they might if you don’t keep track and then you are asked to declare your earnings. 

If your side hustle doesn’t exceed the £1,000 tax-free allowances then you won’t need to do a tax return. If they do, then you will. 

If your business is centred around using online firms like Vinted, eBay, Airbnb, Deliveroo or Etsy to name a few, and you need more information generally, you can read our guide on small business tax and also check out potential accounting software to make the process simpler.