In a move to simplify tax compliance and boost the economy, the Government has announced that the Income Tax Self-Assessment (ITSA) reporting threshold will rise from £1,000 to £3,000.
This means that around 300,000 people will no longer need to file a tax return, including those selling on platforms like Vinted, or offering services such as dog walking.
While we await an official date for this change, it will come as welcome relief for many who find tax returns daunting and time-consuming.
However, even if you fall below the reporting threshold, it is important to keep track of your income and expenses in case your situation changes in the future.
Side hustles and tax
Side hustles have become an increasingly popular way for individuals to earn extra income, with two in five in the UK now engaged in some form of additional work.
Whether it is selling handmade goods, content creation, or renting out property, a side hustle can provide financial flexibility, but it can also come with tax implications that should not be ignored.
With HM Revenue & Customs (HMRC) stepping up efforts to ensure individuals declare their side income correctly, you need to understand your obligations and how recent changes may affect you.
HMRC’s crackdown on undeclared income
HMRC is writing to individuals who may owe tax on online marketplace sales made in the 2022/23 tax year and earlier.
The tax authority has identified a number of individuals who may have failed to declare income from platforms such as Vinted, eBay, and Etsy.
If you are regularly buying or making goods to sell for a profit, you are likely considered to be trading, meaning that Income Tax may be due on any profits, depending on your total taxable income and available allowances.
If you receive a letter from HMRC, you will need to take action within 30 days to confirm whether you owe tax or not.
Failure to respond could result in a compliance check and potential penalties.
Do I need to pay tax on my side hustle?
Not everyone making money on the side will owe tax. The trading allowance means that if your total sales are under £1,000 (soon to be £3,000) in a tax year, you won’t need to report the income.
However, if your sales exceed this threshold, you may need to file a tax return and pay tax on your profits.
Similarly, if you sell personal items for more than £6,000 (and they do not qualify as chattels), you may be liable for Capital Gains Tax (CGT).
The tax-free CGT exemption has been reduced in recent years, falling from £12,300 in 2022/23 to just £3,000 in 2024/25, meaning more people could find themselves with tax liabilities.
What should you do if you have a side hustle?
- Keep accurate records – Even if you believe you won’t owe tax, keeping track of your income and expenses is essential.
- Check your allowances – If your sales exceed £1,000 (or £3,000 when the new threshold is introduced), you may need to report your earnings.
- Consider the tax implications – Are you trading or simply selling personal items? Understanding the difference can determine whether you owe tax.
- Respond to HMRC promptly – If you receive a letter from HMRC, do not ignore it. Failing to respond within 30 days could lead to penalties.
- Seek professional advice – If you are unsure about your tax position, our accountants can help you ensure compliance.
Side hustles can be a fantastic way to boost your income, but they do come with responsibilities.
If you need help understanding how these changes affect you, get in touch with us today.
