By Niamh Tracey | 6 November, 2023

HMRC has New Powers to Access Side-Hustle and Gig Economy Financial Data from 1st January 2024

The rise of the gig economy and the digital marketplace has given birth to a new generation of entrepreneurs who engage in what have become known as side-hustles, either to supplement their income, or as TikTok would have you believe, to earn considerable fortunes.

With the meteoric growth of digital selling platforms such as Etsy, Amazon FBA, Upwork, Uber, Deliveroo and Fiverr, it has become essential for tax authorities to adapt to this evolving landscape.

In response, HM Revenue and Customs (HMRC) now has powers to force the sharing of financial data held within these digital platforms. They have invested a substantial £37m and will employ a dedicated team of 24 full-time staff to enforce their new powers to ensure compliance from an estimated 500,000 UK individuals currently working in the gig economy.

This article will explore the HMRC’s new approach and its implications for both taxpayers and tax compliance.

Understanding Side Hustles and the Digital Marketplace

Side-hustles, also known as freelance work, gig or sharing economies, have become increasingly popular in recent years. Platforms like Etsy, Printify, Amazon FBA, and Deliveroo have allowed individuals to turn hobbies and entrepreneurial dreams into real businesses. Sellers on these platforms often engage in activities like selling handmade crafts, drop-shipping products, or offering services to a global audience.

However, the expansion of side-hustle activities raises questions about tax compliance. In the past, many individuals may not have been fully aware of their tax obligations, and tracking their income and expenses could be a complex and burdensome task.

HMRC’s New Approach

In response to the growing trend for “earning from home” solutions, HMRC has implemented changes aimed at enhancing its access to financial data within the side-hustle companies and platforms that facilitate this way of working. This new approach involves several key components:

  1. Collaboration with Digital Platforms: HMRC has been working closely with major digital platforms to encourage tax compliance. This includes sharing relevant financial data, such as sales information and transaction details, with tax authorities. The collaboration helps ensure that income generated on these platforms is accurately reported and, ultimately, taxed.
  2. Education and Support: HMRC is offering educational resources and support to side-hustle entrepreneurs to help them understand their tax obligations. This proactive approach aims to reduce the likelihood of tax evasion or unintentional non-compliance.
  3. Improved Data Analytics: HMRC is investing in advanced data analytics tools to process the vast amounts of financial data generated by side-hustle platforms. These tools help identify discrepancies and anomalies in reported income, making it easier to detect tax evasion.

The end goal for HMRC is that, from 1st January 2024, they will be able to launch more effective and efficient investigations when there are discrepancies found between what is reported on self-assessment tax returns and what is recorded in digital platform records. They aim to ensure that all individuals working within the UK economy are paying their fair share of taxes, levelling the playing field to be fair to all UK taxpayers.

Implications for Taxpayers

The changes introduced by HMRC have significant implications for taxpayers involved in side-hustles. Here are some key points to consider:

  1. Increased Scrutiny: Side-hustle entrepreneurs can expect increased scrutiny of their financial activities. The collaboration between HMRC and digital platforms means that tax authorities are better equipped to monitor and verify income and expenditure.
  2. Simplified Reporting: HMRC’s educational resources and support are designed to simplify the process of reporting income. Taxpayers can take advantage of these resources to ensure they are fulfilling their obligations accurately.
  3. Penalties for Non-Compliance: Taxpayers who fail to report their side-hustle income could face penalties and fines. With improved data analytics, it is more challenging to evade taxes, and non-compliance may lead to legal consequences.

Conclusion

As the gig economy continues to grow, HMRC’s changes to access financial data from side-hustle companies and platforms represents, in their view, a necessary and progressive step toward ensuring tax compliance. The see the changes benefiting not only themselves as the UK tax authority but also you, the taxpayers, as they promote a fair and level playing field in the evolving landscape of digital entrepreneurship.

There will be instances for some, where one-off or casual work might not be taxable. If you are in any doubt about the taxable nature of your digital or gig-economy earnings, Saul Fairholm is well-placed to step in to advise on any individual’s particular circumstances. Please do not hesitate to contact our amazing front of house team who will direct you to someone who can help.