HMRC’s Crackdown on ‘Side Hustles’ Explained: Navigating the New Tax Reporting Landscape

As we usher in the new year, alongside resolutions and fresh beginnings, there comes a significant shift in the tax reporting landscape. Effective January 1, 2024, businesses globally are now obligated to notify tax authorities of their activities. This change, aligning with the Organisation for Economic Co-operation and Development’s model reporting rules, has implications for individuals engaging in what’s commonly referred to as ‘side hustles.’

Media coverage has been quick to highlight this development, often painting a picture that might be causing concern among those who have found themselves faced with the news that platforms like eBay would now be directly reporting sales activity to HMRC. This has sparked a flurry of questions, especially for those who sell items on online platforms or rent out their properties on platforms like Airbnb.

Let’s break down what this means and how it might impact individuals engaged in such activities, or ‘side hustles’ as they are often referred.

‘Side Hustles’ – Unpacking the Changes

Firstly, it’s crucial to clarify that this isn’t a new tax law; rather, it’s an enforcement of existing regulations. If you’re earning income through sales or services, which will now be reported to HMRC, it’s imperative to ensure that you’ve been compliant with tax obligations. This underscores the importance of accurate and transparent reporting.

Implications of ‘Side Hustles’ for Taxpayers

For many, the immediate concern is how this might affect tax returns. Whether you’re currently in the process of filing your returns or have already done so, there’s a sense of urgency to remind clients of the compulsory nature of declaring all income. This poses an additional challenge for accountants, particularly those who charge fixed fees for preparing self-assessment returns.

While it might be expected that clients could have extra concerns around their tax returns, especially with the added layer of income reporting, it’s essential to manage expectations, given the fixed fee structure that many accountants operate under.

Trading vs. Occasional Transactions

Understanding the nuances of what constitutes trading versus occasional transactions is crucial. The media coverage may have left this aspect somewhat vague. It’s not just about turnover; it’s about profit. This distinction becomes significant, especially for those selling unwanted personal items online, where some transactions might result in a loss rather than a profit.

For instance, selling a used wedding dress online might not generate a profit and will not make you liable to register for self-assessment, whereas selling items acquired at a bargain with a significant markup constitutes trading and must be declared on a self-assessment return.

The £1,000 Exemption

The media reports have also touched upon the £1,000 exemption. Since 2017, individuals have been entitled to take an allowance of £1,000 each from trading profits and net property revenues. While this exemption is in place to prevent many from facing a tax liability, the technicality remains that income must be declared if turnover (not profits) exceeds £1,000. This nuanced point requires careful consideration, especially for those with income covered by the personal allowance.

Challenges and Future Outlook

As with any significant change, challenges are anticipated. The increase in the number of returns filed might not necessarily lead to a substantial increase in the overall tax take. The potential for HMRC’s systems to automatically cross-reference information from platforms like eBay and Airbnb with tax returns could lead to automatic queries for discrepancies.

While time will tell how this change unfolds, it could pose a significant challenge, particularly for small practitioners and their clients. Staying informed and seeking professional advice to navigate these changes is paramount.

Conclusion

In conclusion, staying abreast of these developments and ensuring compliance with tax obligations is crucial. If you have any questions or concerns, don’t hesitate to reach out to us.

This article serves as a general overview, and individuals are advised to consult with their accountants for personalised advice based on their specific circumstances.