Holiday home owners, online marketplace sellers and property renters Airbnb They were warned to prepare themselves for tax pressures.
HMRC has ordered digital platforms such as eBay, Vinted and Airbnb to report information about users’ income from January 1. It could happen that thousands of people earning some extra income could be caught by the taxman if they haven’t declared it.
Almost a third (31%) of UK workers have found ways to earn extra money to supplement their income during the cost of living crisis, according to a survey by comparison site money.co.uk.
“While extra cash is always welcome, some people will not be used to the tax consequences of working for themselves and could easily find themselves in a hot spot with the taxman,” warns Cameron Jaques, business loans expert at money.co.uk. .
We explain who must pay tax on extra income, such as a “moonlighting” or renting a property; tax refundand how the January 1 rules may affect you.
What do the new rules mean?
Digital platforms that allow people to earn extra money on top of their main income will have to start reporting to HMRC how much money their users earn from the start of the year.
Until now HMRC could request this data on an ad hoc basis, but from 2024 it will be shared automatically.
The rules affect websites and apps including Vinted, eBay, Depop, Etsy, Uber, Airbnb and JustPark. This means holiday rental hosts, delivery drivers, people who buy and sell clothes and other items using online marketplaces, and people who sell homemade crafts online will be affected.
The tax restriction also affects digital platforms located abroad. holiday allows In Europe – so they will have to report to HMRC on their UK based sellers.
A copy of the details the platform has provided to the taxpayer will be sent to the seller to help the seller meet their tax obligations. HMRC hopes the rules will mean more people will calculate their tax bills correctly and catch those who deliberately avoid paying.
Although the accountants’ partner is Nick Winters Blick Rothenbergstates that digital platforms will “report annually across calendar years” [rather than tax years]Therefore, the first reporting period will be the year ending December 31, 2024, and they must report this by January 31, 2025. This means that the information may not directly correspond to the information taxpayers report on their own taxpayers because the reporting periods are different. tax returns.”
Although the reporting obligation applies from 1 January 2024, there is nothing to prevent HMRC from asking individuals whether income from that source began before that date. This could result in large tax bills and potentially fines for some people.
The legislation comes from the “Platform Operators (Due Diligence and Reporting Requirements) Regulations 2023”, which were introduced to the House of Commons on 19 July. They enact OECD rules adopted by the EU.
According to Winters, the legislation gives HMRC “the tools to keep pace with modern trading methods”, given the growing number of people moonlighting and making money online using platforms such as Vinted or renting holiday homes on Airbnb.
Do I need to pay taxes?
This depends on whether you are considered a “merchant” and, if so, how much money you make.
Being an investor usually means you regularly buy and sell online to make a profit. For example, if you have a spring cleaning and are selling some unwanted items for no profit, this is unlikely to be classified as a trade. However, if you frequently buy and sell clothing online for a profit, you may be hit with a tax bill.
There’s a handy tool to check if you need to tell HMRC about additional income. gov.uk.
From a tax paying perspective, anyone who earns £1,000 or less from side hustles in a tax year does not have to pay tax or declare that income, thanks to business relief. So if you earn £1,000 from property or business income, this will be tax free; This will save you up to £200 a year if you’re a basic rate taxpayer, or up to £400 a year for a higher rate taxpayer. .
If you rent out your driveway or even sell jam at the local market and your earnings are within the £1,000 limit, you usually won’t need to fill out a tax return; but be sure to keep any documentation that proves relevant only. Your income in case HMRC later requests it.
If you earn more than £1,000 from your side hustle in a tax year, you’ll still benefit from trading allowance, but you’ll need to complete a tax return to report the extra income and pay the tax.
If you’re renting furnished accommodation, such as renting a room to a tenant in your home, remember that you can earn up to £7,500 tax-free using the room rental scheme.
However, if you earn even £1 above your annual allowance, you need to report this to HMRC.
Jaques said: “The bottom line is, whether you’re selling on sites like Vinted or Depop or doing a bit of dog walking, if you earn more than £1,000 from your side hustle in a tax year you should register as yourself with HMRC – even if you’re working full-time.” if you are working.
“Understanding how to avoid unwanted tax bills is an important part of owning more than one business, so if you have the itch to start a side hustle, do your research first.”
How will I pay the tax?
Deadline to file if you think you need to file a tax return for income earned in the 2022-23 tax year The registration date for the self-assessment was October 5. If you haven’t done so yet, don’t panic; Try to register as soon as possible.
You then have until January 31, 2024 to submit your tax return online and pay all taxes for 2022-23, or until October 31, 2023 if you want to submit a tax return. paper return.
When you fill out your tax return, you need to include information about all sources of income, including side hustles, employment, and more. buy to rent or retirement income.
You can do pay income tax By various means, including through internet banking, online by debit card, at your bank or building society or by sending a cheque. Make sure the money reaches HMRC by 31 January.
You can often change your tax code and pay extra tax through PAYE (in other words, deducted through your employer’s pay packets). But Winters says: “Taxpayers are often unable to pay this tax through their PAYE. “They will need to file tax returns and pay tax under the self-assessment regime.”
What about the taxes I had to pay in previous years?
If you have been earning a small amount above your allowance for several years, you can usually file self-assessment returns for those years retrospectively and pay any tax due.
However, if you have larger amounts to declare, or if you have already filed a tax return and did not mention your additional income, you will need to declare it voluntarily. You can use online voluntary disclosure process Providing information about income to HMRC.
Penalties for unpaid tax will generally be lower if you proactively contact HMRC rather than having the taxman chase you.
Penalties can range from 0-30% of the tax payable for non-payment “due to lack of reasonable care”, up to 100% in some cases where the fault is “deliberate and concealed”.
Winters adds: “Penalties can be reduced if you report the error to HMRC, help them calculate the extra tax and give them access to check the figures.”
“There will also be an interest charge on subsequent payments – because interest rates increased, which is now potentially significant.”