If you have a side hustle on top of your regular employment, or you sell items on common resale sites like eBay or Vinted, you may have heard of the so-called ‘Side Hustle Tax’.
On 1 January, new rules came into force which change the way some resale companies like Vinted, eBay or Etsy report data back to the HMRC. As a result, many initial reports speculated that a new ‘Side Hustle Tax’ would mean individuals would soon be out of pocket.
So, what is changing and what do the new tax rules mean for you and your side hustle?
New rules, but no new tax
While there are new rules in place from 1 January 2024, there are no new tax requirements for individuals who sell items second hand on resale websites. The amount of tax you need to pay on your side hustle earnings – and when you need to pay it – hasn’t changed under the new rules.
From 1 January, digital platforms will now be required to collect and report information about seller transactions and income to HMRC. These platforms must report sellers’ income by January 2025, one year after the rule change.
A ‘digital platform’ is an app or website that connects sellers directly to the buyers of their goods and services, which means that popular sites and apps like Vinted, Etsy, eBay and Not On The High Street are included.
So if you sell goods on these platforms, or any services including taxi hire, food delivery and short-term accommodation lets, the HMRC may be able to see your transactions and their value. You will get a copy of this information, which you can use to see whether you owe any tax on the profits you make from your sales.
The changes come after the UK signed up to a global agreement by the Organisation for Economic Cooperation and Development (OECD) that allows tax officials to share information with authorities in other countries.
Will I need to pay more tax on my side hustle?
In order to be eligible for any tax on the goods or services you sell online, you have to be either ‘trading’ like a business or else making a capital gain when disposing of or selling an asset. This means that for some people who are making their side hustle into a regular business, you may have to pay tax on your earnings.
However, if you are simply selling some unwanted items that have been laying around your home, like an old scarf or cardigan, video games or the contents of a loft or garage, it’s unlikely that you’ll have to pay any tax as long as it’s under a certain value.
If all you're doing is selling some items online, firms like Vinted will also not pass on data to HMRC automatically unless you're selling 30 or more items a year or have total earnings from these sales of over £1,700.
However, you may still have to pay tax on your profits if you earn £1,000 or more from selling online in a given year. It’s a good idea to keep records of your sales and transactions, even if they are under the £1,000 limit, just in case you’re asked to produce any proof of your income.
Who needs to pay tax on their side hustle?
To work out if you qualify for paying tax as part of your side hustle, you need to determine if you’re trading as a business or not.
The UK Government site has an information sheet which can help you decide whether you’re considered to be trading, or if you’re simply selling items online.
Here’s a few examples to help:
- Reselling used clothes (or other items) – unlikely to be trading.
If you’re simply reselling your old second hand items on a site like Vinted or eBay, you’re probably selling them at a lower value than what you paid originally. In that case, there’s no need to pay tax on these transactions unless you’re earning £1,000 or more a year from this activity. Information on your trades also won’t be passed to HMRC unless you sell more than 30 items a year or have total earnings over £1,700.
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Buying in order to resell – likely to be trading.
If you’re often seeking out bargains in order to then resell for a profit, you’re likely to be considered as ‘trading’. Whether you’re simply bargain hunting and selling on again or you’re taking something old and making it new before reselling, if you’re regularly turning a profit from your eye for a bargain then it’s likely you’ll have to pay tax on the profits you make via a self-assessment tax return.
- Making and selling – likely to be trading.
If you’re making items yourself and then selling them, for example on Etsy or Not On The Highstreet, you’re likely to be classed as a business and therefore trading. You’ll have to declare your profits in a self-assessment tax return and pay tax on your earnings from this activity.
You can learn more about completing a self-assessment tax return here.
Can I claim tax back on my side hustle?
If you’ve determined that your side hustle meets the definition of ‘trading’ and you need to pay more tax, you might still be entitled to claim certain expenses back in order to reduce your overall tax bill. These are known as allowable expenses.
For self-employed expenses to be classed as allowable expenses, they must have been incurred specifically due to the running of your business or side hustle. This could include things like your business overheads, travel incurred as a result of your business, or even the cost of your business insurance.
HMRC lets you subtract these costs from your business' profit, so you only pay tax on the remainder. So, having a clear understanding of your allowable expenses will ensure you're paying the right amount when submitting your self-assessment tax return at the end of the tax year.
See our guide to self-employed allowable expenses to find out which expenses you can and can’t claim for.
Can I still start a side hustle?
In short, yes! Side hustles can be a great way of boosting your regular income or turning a hobby into a money spinner.
If you’re looking to start a side hustle but you aren’t sure of what your tax obligations might be, what business insurance you might need or even what your first step should be, take a look at AXA’s guide to starting a side hustle.
All links are checked and valid at time of publishing, 8 January 2024.
