As the New Year Commences, HMRC Set Out New Tax Regulations – What Does This Mean For Your ‘Side Hustle’?

Disclaimer: This article is written by Muorada. Any views and opinions expressed in this article are those of the writers and do not necessarily reflect the views or positions of the team editor nor any entities they represent.

If you have ever been cash strapped and taken the initiative to search on Google ‘quick ways to make money’ or ‘easy ways to get cash quickly’ you’ve probably come across the idea of selling unwanted or unused items such as clothing, furniture and electronics or taking up a second part-time job. These are often referred to as a ‘side hustle’ and are a great and easy way to generate surplus income, especially during the ongoing cost-of-living crisis.

Comparison website, finder.com highlights that a staggering 76% of Gen Z, have a side hustle in 2023 while 44% of British people have also adopted the concept. Indeed.com defines ‘side hustles’ as extra income made outside or separate from your main career. This can include selling items on online marketplace websites/platforms, delivering takeaways and groceries through food delivery services and online content making, which is especially popular amongst Gen Z.

At first glance, these attempts to make cash are seemingly easy and fruitful as the income generated from these activities is often viewed as entirely owned by the individuals who generate them. However, with new HMRC tax regulations, these earnings may be subject to tax or could potentially leave Brits in an elevated tax bracket.

What happens if I want to sell old items?

In this context, the new regulations under The Platform Operators (Due Diligence and Reporting Requirements) Regulations 2023 (which came into place on the 1st of January 2024) require marketplace e-commerce websites like Depop, ebay and Vinted to officially declare the money generated from sellers. The purpose of these measures is that HMRC will get a truthful and accurate amount that sellers are meant to be taxed by having direct access to the income they make. Previously, sellers were able to state their extra incomes themselves, but measures provide further accuracy in how much tax is owed. Sellers who make less than £1000 within the tax year will be not affected by the new guidelines, therefore, sellers who occasionally clear out their wardrobes and homes and generate a small amount of income are included in the new regulations. Moreover, the £1000 limit applies to sellers who use online marketplace platforms as secondary income, if sellers depend on these sites as their sole source of income, then the tax-free income is set at £12,570.

The impact of larger ‘side hustles’ that generate large incomes

Due to the increased preference for sustainable shopping and the trend of nostalgic clothing, sellers who may be impacted by the new regulations are vintage clothing vendors. At first glance, these could be confused with side hustles that have become successful but if items are being bought and sold consistently, these vendors could be viewed as business owners. In this case, businesses would need to register as a company and must register for tax self-assessment. This must be completed no later than the 5th of October on the tax year of when the business was established. For example, 5th October 2024 will be the deadline for businesses that started trading from April 2023 to April 2024. Businesses must also declare profits and costs and if these surpass £1000, businesses may be taxed 20%, however, a benefit of registering as a business means traders have the benefit of the money they spend on the business returning to them, this is referred to as “allowable expenses”.

The impact of the new regulations is that HMRC will have automatic access to the profits sellers make on online platforms and allow traders and sellers to pay a correct amount of tax. It is important to note that sellers who use online platforms are not necessarily businesses, even if they make a profit of over £1000 occasionally since profit depends on what vendors sell.

How can I find out if I’m eligible to declare the income I make?

There’s a short test created by HMRC that allows sellers to determine whether they are eligible to declare their income to them. The questions include how the income was made, what type of goods were sold, who the goods were sold to and the amount that has been earned.

Overall, side hustles are a creative way to accumulate money since they allow individuals to be in charge of how they make money. Moreover, a side hustle can be almost any type of service or product offered, meaning people can adjust their skills and interests to create one. Many guides, like the one offered by Forbes Advisor, propose ideas and suggestions in different fields and expertise. Nevertheless, planning is essential and tax rules, wherever applicable, should be observed as failing to pay the correct number of tax (or any tax at all!) may lead to fines and further repercussions.