The new tax rules surrounding third party selling sites
The term ‘side hustle’ refers to a paid activity or work you take on in addition to your regular job. This could be in the form of renting out your driveway or a room in your house, or selling unwanted clothes on marketplace websites.
As of December 2023, Amazon was the most visited marketplace website in the UK. eBay comes in a close second, with approximately 1.9 billion listings and 132 million active users, while Vinted continues to grow in appeal with 65 million registered users as of 2022 – a 7 million user increase on the previous year.
If you regularly use third-party sites like these as a side hustle, you could be liable to pay tax on your extra earnings in line with new rules set out by HM Revenue and Customs (HMRC) and the Organisation for Economic Cooperation and Development (OECD).
What are the new tax rules, and when do they come into force?
As of January 1, 2024, online companies are required to share transaction details with HMRC, including how many sales an individual has made and how much money has been generated. Information gathered from 2024’s earnings will be received by HMRC in January 2025.
The purpose of this is to gain an insight into who may need to pay additional tax, and is part of the OECD’s wider plan to eliminate tax evasion.
Which sites will be affected by the new tax rules?
Some of the websites that will be required to report seller transaction information include:
Any platform that allows sellers to promote and offer their services to potential customers will also be responsible for providing HMRC with relevant data. This includes websites and apps that allow you to rent out a room in your home, or offer bespoke skills such as cake making and gardening.
Who will be impacted by the new tax rules?
At first glance, HMRC’s new rules may be unwelcome to many of us who regularly use various online platforms to bring in a bit of extra money.
While understandably worrying, it’s important to take a step back and put the news into perspective.
If you use Vinted to sell the odd pair of jeans here and an old pair of boots there you may not be affected.
If your side hustle earns you less than £1,000 a year in profit after deductibles, your information will not be passed to HMRC. The same applies to those making fewer than 30 transactions over a consecutive 12-month period.
Renting out a room in your main residence – including Airbnb setups – also falls under a different set of rules. In this instance, you are able to earn a tax-free amount of £7,500 if you are a sole renter, or £3,750 if the income is shared with another person – your spouse, for example.
You will pay tax on any amount above these earnings.
If you find yourself with a bigger tax bill than expected due to your side hustle, you could consider a loan to give you an instant cash influx to help you pay. You could check to see if you will be accepted with a loan eligibility checker, with no impact to your credit score.
What happens next?
If you think you may owe tax on money previously earned, you should complete a Self-Assessment tax return as soon as possible.
What is a Self-Assessment tax return?
Self-Assessment is an HMRC system used to work out how much Income Tax is owed from certain groups of people, including those are self-employed and anybody who earns a taxable income of over £100,000 per year. It also applies to those in receipt of untaxed income, such as money earned through side hustles, tips, and commission.
How can I complete a Self-Assessment tax return?
Self-Assessment tax returns can be completed either online or via paper form.
You can complete and send your online claim here. For future reference, you can request a hardcopy SA100 form by calling HMRC.
The 2022 – 2023 tax year ran between April 6, 2022, and April 5, 2023, and the deadline for paper claims was midnight on October 31, 2023. Online submissions close at 11:59pm on January 31, 2024. All outstanding tax must also be paid by the same date.
Late returns will result in penalties.
Returns sent up to 3 months late will incur a £100 penalty. Any return received after three months will be subject to higher penalties.
It’s worth noting that you will also be charged interest on late payments.
You may be able to appeal against a penalty. There are a number of eventualities that could be considered a reasonable explanation for late returns and payments, including serious and life-threatening illnesses or an unexpected stay in hospital.
The bottom line
Unsure whether you need to complete a Self-Assessment tax return? You can use this handy tool on the Gov.uk website to find out. It’s always better to check and know exactly where you stand, than leave it to chance and subsequently risk being hit with penalties further down the line.