Will you have to pay HMRC's "side hustle tax" when you sell things online?

You might have seen the headlines about the introduction of a “side hustle tax” for online sellers. 

The tax is reportedly part of a clampdown by HM Revenue and Customs (HMRC). It targets people making money on sites like Depop, Vinted, eBay, and Etsy to make sure they’re paying the right amount of tax on their earnings. 

But the need to pay tax on side hustle income isn’t new at all. We’re digging into the story behind the headlines to help you understand what’s going on and what it means for you. 

Paying tax on side hustle income isn’t a new thing 

Although the headlines have made it seem like the “side hustle tax” is new, it’s not.  

Anyone who earns over £1,000 a year from self-employment needs to pay tax on those earnings. This has always been the case.  

Self-employment covers money you earn that doesn’t go through the Pay As You Earn (PAYE) system, which deducts taxes automatically from your wages. That includes, and has always included, any money you make from selling online.  

If you don’t declare your online earnings by completing a Self Assessment and pay any tax you owe, you could face hefty fines. These include: 

• A £100 late filing penalty and further fines if you complete a Self Assessment late or not at all 
• A penalty of 5% of your tax bill (plus interest) if you pay the tax you owe more than a month late 
• A further 5% penalty is applied when your tax bill is six months late, then again when it’s 12 months late 

New rules will make your side hustle earnings more visible to HMRC

The UK is a member of the Organisation for Economic Cooperation and Development (OECD), an international body. Through the OECD, the UK government has subscribed to new rules that’ll help catch and stop tax dodgers around the world.  

These rules don’t create any new tax obligations for people. They relate to the reporting that online platforms provide to HMRC about their users’ earnings. From January 1st 2024, sites like eBay and Depop will start to collect information about the transactions going through them. This includes seller information, such as: 

• Personal details like your name, date of birth, and National Insurance number 
• The number of sales you’ve made on the platform 
• How much you’ve earned from your sales 

They must provide this information to HMRC on request. 

From the end of January 2025, online platforms will have to proactively share information about anyone who makes more than 30 sales or earns more than £1,735 with HMRC, not just collect it.  

The introduction of these rules will make it easier for HMRC to see who’s earning what through online platforms. They will contact anyone they believe has income they’re not declaring and will be able to issue fines if you don’t pay the tax you owe. 

These rules are designed to catch tax-dodging traders, not casual sellers 

People who occasionally sell online to get rid of unwanted items are unlikely to be affected by these new rules. If you only sell things now and then, the chances of you meeting the criteria for your details to be shared are slim.  

Rather, the rules are there to catch people who make a business out of selling online but don’t declare their income. These are people who either make or buy things specifically to sell them at a profit. 

One example of this is people who buy from charity shops or car boot sales, then list their finds online at a higher price. If you’re just selling unwanted items from around the house, it’s unlikely you’ll sell them for more than you originally paid for them. 

Keeping good records can help you stay on top of the rules and avoid fines 

Online platforms are already collecting information about your sales and what you earn from them. It’s a good idea for you to keep your own records, too. This will help you see if you’re making sufficient sales or earning enough that your details will be shared with HMRC. Then, if you need to complete a Self Assessment, you can register and submit it before HMRC asks you to. 

Your records will need to include the following:  

• The details of each online sale you make 
• Postage and packaging costs (that aren’t passed on to your customers) 
• Platform membership fees 
• Seller fees 
• The cost of equipment and materials 

Remember, whether you need to pay tax on your online earnings is down to your individual situation. You may need to complete a Self Assessment, even if you haven’t crossed the OECD’s threshold, if you meet other criteria. 

Are the earnings worth the effort? Only you can decide 

The new rules will mean you need to do more admin work to sell things online. And more admin = more effort. For some people, the money or the space you get back by selling things online will be worth the extra time it takes. For others, it won’t be worth the hassle. Only you can decide if you want to sell things online under these rules. But if you do, make sure you declare your earnings! 

Sources 

https://www.bbc.com/worklife/article/20240129-the-unwelcome-new-tax-surprise-for-side-hustlers 

https://www.independent.co.uk/life-style/hmrc-tax-side-hustle-online-sellers-ebay-b2474542.html 

https://taxaid.org.uk/the-side-hustle-tax-explained