Unsurprisingly, the dawn of 2024 found itself bombarded with rife tax news and speculations. Notable among them was the widespread and erroneous buzz about a new ‘side hustle tax.’ This ill-informed rumour spread like wildfire across social media platforms, triggering unnecessary financial anxiety among numerous individuals. So, what is the truth behind these ‘side hustle tax’ rumors, and what lessons can we draw from this episode?
Digital Platform Reporting Rules and the ‘Side Hustle Tax’ Myth
Starting in 2024, digital platforms took on the responsibility of annually reporting to HMRC about sellers using their platforms to peddle goods or services. The ‘digital platform’ in this context spans any website or app that enables transactions between sellers and customers. For example, individual sellers using platforms like eBay, Etsy, Vinted, or those offering services or letting out properties.
These reporting rules are part of a broader initiative by the OECD, mandating platforms in the UK to report seller information to HMRC, with exceptions for sellers who handle less than 30 transactions per year or earn less than 2,000 euros. The information being reported includes the sellers’ identities, earnings, and bank account details.
However, some major outlets erroneously labelled these reporting rules as the inception of a new ‘side hustle tax.’ This misleading information led to a frenzy of worried individuals flooding social media with questions on whether selling their second-hand clothes or clearing their attics would now incur tax. But was there really a new tax on side hustles?
Contrary to the misinformation, no new ‘side hustle tax’ has been, or is planned to be, introduced. While the platform reporting rules will avail HMRC with considerable extra information, the fundamental rules regarding when online sellers are taxed remain unchanged.
Understanding Tax Implications for Online Sales
To determine whether online sales activities are taxable, one should examine whether a trade exists. Without delving into the granular details, selling unwanted personal possessions isn’t likely to be classified as trade, whereas buying or creating items to sell for profit most likely is.
Tax is only payable when a profit is made from the trade. Furthermore, the trading and property allowances enable taxpayers to rake up to £1,000 annual gross income before any tax becomes applicable. Thus, many platform sellers have no cause for concern about tax liabilities from their activities.
In response to the misguided ‘side hustle tax’ scare, tax experts and organisations like the ATT and the Low Incomes Tax Reform Group (LITRG) took to various platforms, dispelling the myths and explaining the actual implications of the new rules. HMRC also released a new information sheet detailing online selling and tax payments.
This whole episode emphasises the potential damage that can stem from inaccurate reporting and miscommunication regarding tax matters. It’s a poignant reminder that tax advice is best sought from professionals, not social media. But more so, it reveals the extent of public ignorance about tax fundamentals, a situation that breeds unnecessary worries.
The tax industry and HMRC share the duty of debunking such misunderstandings. However, it also highlights the need for platforms to ensure clear communication and accurate reporting, especially when it involves matters as sensitive and impactful as ‘side hustle tax.’ If you have any concerns about your finances, don’t hesitate to get in touch with one of our tax specialists.
