UK Tax Authority Sharpens Focus on ‘Side-Hustle’ Income Reporting

Side Hustles

We have witnessed significant growth in the gig economy over the last couple of years, largely driven by companies such as Airbnb Inc., Vinted UAB Group, Uber Technologies Inc., Fiverr International Ltd., Etsy Inc., and Deliveroo Holdings Plc. A report published in September 2023 has backed this trend, showing that just under half a million people in the UK will have a side hustle by 2025.

The UK government has been closely monitoring the numbers related to the gig economy, which are expected to exceed £72 billion ($91.5 billion) per year. Individuals who are involved in reselling clothes on Vinted, driving for Uber, or renting out their spare bedroom on Airbnb therefore need to pay attention to the changes around digital reporting rules.

Essentially, the new rules from the UK tax authority HM Revenue and Customs set out to minimize tax avoidance of sellers who regularly use digital platforms to make an income of more than £1,000 in a tax year. This threshold figure is known as the trading allowance.

Online sellers or freelancers earning an income above this figure from self-employment, property, or other sources may need to register for self-assessment and pay tax on the profits. However, if their total untaxed income is less than £1,000 and they make fewer than 30 sales in a year, they won’t need to report their earnings. It’s still their responsibility to fill in a tax return once their income reaches the £1,000 threshold.

The amount of tax the seller will owe won’t differ from previous years; the difference is that the UK government will have a clearer picture of an individual’s income going forward.

Reporting Data

Reporting data means those who are “side hustling” must report information such as their tax ID, bank account information, and the amount and number of transactions made each year. HMRC will then collate the data and match it to the correct taxpayer, who must be registered for self-assessment if their total untaxed income is more than £1,000. While the side-hustle tax isn’t a new tax, online sellers must ensure they’re compliant with the new reporting rules.

HMRC can already request information from UK-based digital platforms, but as the UK is a member of the Organization for Economic Cooperation and Development, information can also be shared with other tax authorities to access data from platforms based elsewhere. This isn’t just a UK tax crackdown—it’s an international one.

Allowance Based on Turnover or Profit?

The threshold for registering as self-employed and paying tax on a side hustle is based on untaxed income before any deductions are made. If the total income earned exceeds £1,000 in a year, the seller will have to register as self-employed and pay tax on their side hustle.

The amount of tax a seller must pay is determined based on their profits. The costs of running a side hustle and being self-employed can be claimed as a business expense—also known as allowable expenses. Most business expenses are allowable and are offset against business profits, which reduces the tax bill.

Once they reach the trading allowance threshold and need to submit a tax return, side hustlers can choose whether they claim their allowable expenses or use the £1,000 allowance against their tax bill. They can choose whichever is higher to be more tax efficient.

Sellers who side hustle and earn less than £1,000 of untaxed income in a tax year don’t need to register for self-assessment. If a seller makes more than 30 transactions, these sales may be reported by the digital platform—but if the seller’s total income from all their online sales is below the threshold, they still won’t need to register.

Selling at a Loss

A seller may reverse and show an item sold at a loss. Could this reduce the overall tax bill?

Side hustle sellers and self-employed people pay tax on profit, not income. Claiming relief on the costs of running a side hustle means the profit is lower, which reduces their tax bill. To prove they are selling at a loss, the priority for any gig worker is to ensure they’re up to date with their bookkeeping practices. That’s a must, as it will help ensure that any data matches the information shared between the platform and HMRC.

What individuals need to act on today is to submit a self-assessment tax return if the total amount they make from online selling (or other untaxed sources such as property income) is more than £1,000 in a tax year, even if they believe they might have incurred a financial loss.

They can still choose to offset the trading allowance against any income so that they won’t pay tax on the full amount. Alternatively, if their costs are very high, they can claim tax relief on their expenses instead.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.