If you are generating income through a side hustle—whether that involves selling items online or engaging in content creation—it’s important to be aware of your tax obligations. Recent regulations introduced at the start of this year aim to enhance the government’s oversight of individuals earning supplementary income from such ventures.
This means that if you are involved in activities such as renting out equipment on platforms like Fat Llama, driving for Uber, or freelancing on Fiverr, your earnings will be reported directly to HM Revenue and Customs (HMRC). This also encompasses millions of individuals who sell clothing online. Platforms like Depop and Vinted have gained immense popularity in recent years, providing users with a straightforward way to make some extra cash. With the holiday season approaching and many likely to list unwanted gifts, it’s vital to understand how these new rules might apply to you. Confusion surrounding when and how to report taxes on additional income from these platforms has been widespread.
To address this uncertainty, HMRC has launched an online tool designed to assist individuals in determining whether they need to declare their earnings. Failing to comply with these regulations could result in unexpected tax bills, highlighting the necessity of staying informed. This year marks a significant change, as HMRC will now directly engage with these platforms to log users’ earnings.
Dawn Register, a tax dispute resolution partner at the accountancy firm BDO, stated, “This new tool serves as a valuable resource for individuals uncertain about their tax return obligations and how to accurately declare their earnings.” It is crucial for those selling goods online to understand the updated requirements, which mandate that digital platforms report users’ transaction data. Platforms must submit this information to HMRC by January 31 of the following year, encompassing data from at least a portion of the current tax year.
How to Utilize the New HMRC Tool? The newly established online tool enables users to ascertain whether they need to report income obtained from online platforms. To effectively use this tool, you will need to gather some information regarding your earnings: The total amount received or anticipated during the tax year, any shared income with another individual, and other income sources requiring declaration.
When reporting to HMRC, it is essential to provide information covering the entire tax year, which runs from April 6, 2023, to April 5, 2024. Note that some platforms might reflect your income for the calendar year (January 1 to December 31), so you may need to convert the figures accordingly.
Penalties for Late Tax Filing: The penalties for late submissions can be quite severe, making it crucial to submit your self-assessment return by January 31. According to HMRC, failing to file your return even a single day past the deadline incurs an immediate £100 fine. In addition, a daily penalty of £10 may accrue until you submit your return, capped at 90 days, leading to a possible maximum fine of £900. Initially, this means you could face a total of £1,000 in fines if you submit late.
If your return is six months overdue, an additional fee of £300 or 5% of the tax owed will apply, whichever is greater. A similar process occurs after a year of delay, as another £300 or 5% fine will be added. Note that interest may also be charged. In cases of intentional nondisclosure, the penalty could escalate to a staggering 100% of the outstanding tax due.
Do You Need to Submit a Tax Return? Self-assessment is the method employed by HMRC to collect income tax. While taxes are often deducted automatically from wages, pensions, and savings, individuals with additional income must report this via a self-assessment tax return.
You are required to file a return if you Earn more than £1,000 from self-employment, Generate over £2,500 from rental income, Receive high-income child benefits with an annual income exceeding £50,000, Accumulate over £2,500 in other untaxed income (such as tips or commission), Are a limited company director, Hold shares – Claim expenses over £2,500 as an employee, Have an annual income exceeding £100,000.
Before you can complete your tax return, you must obtain a unique taxpayer reference (UTR) and an activation code from HMRC. This process can be time-consuming, particularly for those filing a self-assessment for the first time, so registering online as soon as possible and seeking guidance from HMRC is advisable. To start the registration process or to log in, visit the “Self-Assessment tax return” section of HMRC’s website.
Your UTR will be included in relevant correspondence from HMRC. Keep in mind that HMRC recognizes the payment date as the date you submit it, not when it reaches their account. This includes weekends.
The deadline for submitting your self-assessment tax return by post is October 31. If you miss this deadline by up to three months, you will incur a £100 penalty; exceeding three months will result in additional fees. If you fail to send your paper form on time, you still have the option to complete your tax return online by the January 31, 2025 deadline. If you need to amend your return after submission, you can do so within 12 months of the original deadline, or you can communicate with HMRC for changes thereafter.
While filling out your tax return may seem intimidating, there are step-by-step guides available to simplify the process. Additionally, many individuals are just beginning to realize how their side hustles might lead to unforeseen tax liabilities. Furthermore, a list of occupations at risk of incurring higher-rate taxes is available, revealing that it’s not always the expected professions.
