Side Hustles Face New HMRC Scrutiny

Starting January 1, HMRC will require platforms like Airbnb, Uber, and Fiverr to report earnings made by people using these services to sell their offerings, marking a significant shift in how side incomes are monitored. This change is part of a broader effort by the tax authority to clamp down on what it perceives as potential tax evasion by individuals with side hustles, as The Sun reports.

Previously, it was entirely up to individuals to report this income on their tax returns. However, the new measures will ensure that HMRC has a direct line of sight into these earnings, raising the stakes for those who fail to declare this income on their tax returns.

Why This Change?

According to Seb Maley, CEO of Qdos, a tax insurance provider for self-employed workers, this new legislation is designed to address HMRC’s concerns that many in the UK aren’t accurately reporting income from their side hustles. Essentially, HMRC is now shifting some of the responsibility onto the platforms themselves, requiring them to record and share information on earnings.

This means that if you’re making money from a side gig, HMRC will know about it, whether you report it or not. They’ll be comparing the data from these platforms with individuals’ tax returns to identify any discrepancies.

The Importance of Tax Compliance

With these changes on the horizon, it’s more crucial than ever to ensure full compliance with tax laws. Failing to report income accurately can result in severe penalties, and with HMRC receiving data directly from the source, it’s much easier for them to spot any inconsistencies.

Who Needs to File a Tax Return?

The self-assessment system is used by HMRC to collect income tax from individuals and businesses with income sources not covered by the standard Pay-As-You-Earn (PAYE) system. This includes income from self-employment, rental properties, certain benefits, and more.

You’ll need to file a tax return if any of the following apply:

  • Your self-employment income exceeded £1,000.
  • You earned more than £2,500 from renting out property.
  • You or your partner received high income child benefits and either of you had an annual income of more than £50,000.
  • You received more than £2,500 in other untaxed income, such as tips or commissions.
  • You are a director of a limited company.
  • You’re a shareholder.
  • You’re an employee claiming expenses in excess of £2,500.
  • You have an annual income over £100,000.

Meeting Deadlines and Avoiding Penalties

It’s vital to meet the self-assessment deadlines to avoid penalties. The deadline for paper tax returns is October 31, while online returns must be filed by January 31, 2024. Penalties for late filing start at £100 if you’re up to three months late, with additional fines accruing the longer you delay.

If you realize you’ve made a mistake on your tax return, you have 12 months from the original deadline to make changes. After this period, you’ll need to write to HMRC to amend your return.

The Bottom Line

The landscape for side hustles is changing, with HMRC taking a more proactive role in capturing income data. If you’re one of the many people using platforms like Airbnb or Uber to boost your income, it’s imperative to understand these changes and take steps to ensure you’re compliant with tax laws. As the saying goes, it’s always better to be safe than sorry, especially when it comes to taxes.