The Rise of Side Hustles Amidst the Cost-of-Living Crisis
In today’s ever taxing world, where the cost of living seems to always be on the rise, it’s no surprise that nearly a third of UK workers are exploring creative avenues to earn extra cash. Whether it’s selling vintage clothes on Vinted, mastering the art of dog walking, or offering your expertise on Fiverr, side hustles are increasingly becoming a significant part of our personal lives and financial landscape. However, with this rise in entrepreneurial spirit, there’s a critical aspect that you must not overlook: The side hustle tax implications.
Navigating Side Hustle Tax: Essential HMRC Guidelines
We need to raise a flag of caution for all side hustlers out there. If your side hustle brings in more than £1,000 per tax year, you’re stepping into self-employment in the eyes of HMRC. This means you will need to register for self-assessment, even if you’re main income is that of a full-time job.
Side Hustle Tax Management: Beyond the PAYE System
Here’s the kicker, managing your taxes isn’t like the PAYE system where everything is neatly deducted from your salary. As a self-employed individual, you’re responsible for filing a self-assessment tax return and ensuring your taxes are paid. Neglect this, and you might find yourself in a pickle, especially with the new HMRC rules kicking in from January 1, 2024.
But don’t let this dampen your entrepreneurial spirit. Understanding these tax nuances is crucial, especially if you’re considering a side hustle. Do your research, stay informed, and you’ll navigate these waters just fine.
The Growing Trend of Side Hustles and Tax Implications
Now, let’s talk some numbers. Around 12 million people register as self-assessment taxpayers with HMRC annually, and this number is growing with the rise of side hustles. From crafting to content creation, if you’re earning on the side, it’s time to sit up and take notice. Miss the boat on registering, and you could be looking at fines and even interest charges on late tax payments.
According to Finder.com, a staggering 44% of Brits had a side hustle in 2023. And with the current cost of living situation, this trend is only going upwards. Keep your eyes on the prize and your books in order. It’s not just about earning extra cash; it’s about being smart with it too.
Keeping Up with Side Hustle Tax Compliance
HMRC has outlined clear guidelines for side hustlers. If you earned over £1,000 from self-employment, more than £2,500 from renting out property, or have other untaxed income exceeding £2,500, it’s time to get on the self-assessment bandwagon. And yes, this includes those of you who received a P800 form indicating unpaid taxes.
Self-Employed Tax Registration: A Step-by-Step Process
If you’re new to this and feel a bit lost, don’t worry. HMRC’s Director General for Customer Services, Myrtle Lloyd, assures that there’s plenty of guidance available on Gov.uk to help you through the process. From registering to filing your tax returns, HMRC is there to assist. If you don’t feel comfortable with doing it yourself, our team at MJ Kane can complete the registration forms for you and we can even produce and file your self-assessment tax returns too.
Future Changes with Side Hustle Tax Reporting
Looking ahead to January 1, 2024, going forward, digital platforms such as eBay, Airbnb, Fiverr, Uber, Etsy and others will be required to keep record of your earnings and report them directly to HMRC. This move is part of a broader effort to clamp down on individual side hustle tax avoidance. If you’re declaring your income correctly, there’s nothing to worry about. But if you’re not, it’s time to get your ducks in a row.
Remember, the trading allowance allows you to earn up to £1,000 per tax year without worrying about taxes. And under the Rent A Room Scheme, you can earn up to £7,500 tax-free from letting out furnished accommodation in your home. If your side hustle earnings exceed these thresholds, it’s time to have a chat with one of our accountants.
While side hustles are a great way to supplement your annual income, they come with their own set of responsibilities. Stay informed, stay compliant, and here’s to your success in your entrepreneurial endeavors!