Making a bit of extra cash on the side is always a plus, whether it’s selling old items, refurbishing furniture, or crafting as a hobby. You might not even see your side hustle as a serious business venture.
But recent developments, such as the increased scrutiny of platforms like Vinted, eBay, and Etsy by tax authorities like HMRC, might prompt you to wonder if your side gig is crossing into the realm of business, taxes, and self-employment. We’re here to clarify the rules surrounding side hustles and pinpoint exactly when tax obligations come into play.
When do I need to start considering taxes on my side hobby?
For most individuals, there’s a buffer before tax obligations kick in, thanks to what’s known as the ‘trading allowance.’ If your annual sales of goods or services stay under £1,000, you’re exempt from paying taxes on those earnings.
It’s worth noting that this allowance pertains to income, not profit. So, even if your profits are lower than £1,000, you still need to declare any income exceeding that threshold.
Keeping thorough records of your side hobby is prudent, even if you don’t anticipate surpassing the £1,000 mark. You wouldn’t want to be caught off guard by a significant sale toward the end of the tax year, scrambling to gather your financial records.
If your hobby generates over £1,000 annually, you’ll need to assess whether your activities qualify as trading according to HMRC’s criteria, known as ‘badges of trade.’
A general rule of thumb is that occasional sales of old or unwanted items typically don’t constitute trading. However, if you’re purchasing, modifying, or creating goods with the intention of selling them, HMRC is more inclined to classify you as engaged in trading activities. For further clarification, please contact us using the contact page.
What about one-off sales exceeding £6,000?
If you sell your old possessions online as a one-off activity, you are unlikely to have to pay tax. This is because you will rarely get more money than you paid for them. In other words, you don’t make a profit. As an example, if you cleared out your attic and sold your old possessions on eBay, you don’t have to tell the taxman. There’s one exception to this – when you sell an item worth more than £6,000 you may have to pay Capital Gains Tax. However, this doesn’t apply if you sell your car.
Have the rules changed for sellers on online platforms like Vinted, eBay and Etsy?
Contrary to some social media speculation, there haven’t been any alterations to the rules for sellers. If your income falls below the £1,000 trading allowance, you needn’t worry about additional taxes. However, if you exceed this allowance, you’ll need to explore filing a Self Assessment tax return and settling taxes on your profits.
The recent change affects online marketplaces, defined by HMRC as any digital platform facilitating the sale of goods and services from individuals or businesses to customers. As of 1st January 2024, these platforms are required to collect seller income data for submission to HMRC by 31st January 2025. This mandate encompasses platforms like eBay, Vinted, as well as food delivery, taxi services, and short-term accommodation platforms like Airbnb.
This initiative aims to enable HMRC to more accurately estimate tax liabilities for sole traders and businesses using these platforms, while also identifying sellers who may owe taxes on their side businesses.
How can you manage your side hustle’s finances effectively?
For those with burgeoning “side hobbies”, speaking to a professional from Account-i will help you to track your income and expenses and assists in completing your Self Assessment return.