There has been much hype in the press recently about a new ‘side hustle’ tax introduced by HMRC. Headlines have suggested that where individuals have been selling secondhand goods on online sites, they may now be subject to tax on this ‘side hustle’.
Is there a new tax?
In short, there is no new tax and in fact, nothing has changed in terms of whether an individual should be declaring income and paying tax when selling via sites such as Vinted, Etsy, eBay and Facebook Marketplace. This was, and still is, dependent upon whether an individual is trading.
How do I know if I am trading?
To put it simply, if Jody is having a clear out and selling hers and her children’s clothes on Vinted, she will not need to declare this, nor pay tax. It is very unlikely that she would be able to earn a profit on such sales as she will almost certainly be selling the clothes at a much lower price than that which she originally paid for them.
If, on the other hand, James has an eye for fashion and has had success with upcycling old trainers with customised art and selling them at a premium on eBay, he could potentially be within the definition of trading.
A number of factors are considered, however, when determining whether an individual is trading, known as the badges of trade. This includes whether the individual is selling with a view to making a profit, but also considers a number of other factors such as the frequency of transactions, modifications to the asset prior to sale to make it more marketable, length of ownership prior to sale and how the asset was acquired.
I have heard I do not need to pay tax if my profits are less than £1,000
Not quite, but if you are trading, tax will only be payable to the extent that annual gross income (and not profits) exceeds £1,000, as it is possible to claim a ‘trading allowance’ up to this amount before becoming liable to tax. In some cases this may be more beneficial than claiming actual expenses incurred.
What has changed?
From 1 January 2024, digital platforms are required to make annual reports to HMRC about those who are selling goods or services via their sites. Under the rules, those platforms will need to include details of all registered sellers where they have executed more than 30 transactions in the year and earned more than €2,000 (note this is euros).
Whilst changes have not been made to the tax rules, HMRC will now have access to more information that may enable them to more easily identify where individuals are genuinely trading and have not been declaring income from selling via online websites.
What next?
If you would like further advice on whether a side hustle could be deemed to be trading, or if you are unsure of your tax obligations, please get in touch.
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