By Niamh Tracey | 7 February, 2024

Tougher side hustle tax rules come into force

HMRC is clamping down on abuse of the system with new rules requiring online platforms to make an annual report to the tax authority detailing the names of individual sellers and volume of their sales to ensure they do not evade tax.

The owners of websites such as Etsy, eBay, Vinted, Amazon Seller Central, Gumtree and Airbnb have until January 2025 to report sellers’ information for tax purposes to ‘bear down on tax evasion’.

However, online platforms will not have to report individuals with less than 30 sales regardless of the value of the amount sold.

In a bid to clamp down on tax avoidance HMRC said it was investing an initial £36.9m in developing a system for online marketplace reporting and has hired a team of 24 full-time staff to work on the project.

From next year, platforms will be required to report how much individuals are earning through the platforms.

People can earn up to £1,000 a year through self-employment, such as these so-called side hustles, but anything over this figure is liable to tax and must be reported to HMRC or risk a fine. The sellers must also register as self-employed for anything over this threshold.

According to HMRC’s policy paper on the topic these new rules will ‘support the government’s work to help taxpayers get their tax right first time, and to bear down on tax evasion’.

HMRC recognises that these new changes will have a drastic impact on the platforms stating ‘customer experience for digital platforms could be negatively affected as this change is complex and may require them to perform tasks they do not currently perform.

‘HMRC has consulted on the new regulations in the UK and will, in due course, issue clear guidance on how to comply with the new rules.’

This means HMRC will be able to analyse sales of any products online through the platforms, including sites such as Vinted where people sell unwanted clothing items to Etsy where it is easy to set up a webpage and trade quickly.

The online platforms will have until January 2025 to report information on sales. Among the information requested will be the tax ID, bank account details and the total amount of transactions.

The sectors affected by this new reporting requirement are all online platforms, involving a broad array of services. This can range from taxi hire, food delivery, selling handmade items, the re-sale of clothing items and the rental of properties for short-term accommodation.

HMRC’s guidance on selling online and paying taxes provides information on whether someone selling infrequently online will be liable to tax on any profits and examples of what side hustles will be classified as trading, therefore needing to pay income tax.

Credit to Accountancy Daily.