As of 31^st January, companies like Vinted and eBay are required to report to HMRC on how much money their users are making. The question is, will this affect your income tax?

What is the ‘Side Hustle Tax’?

A second source of income separate to your regular income is colloquially referred to as a ‘side ’hustle’. One of the most common forms of secondary income is from reselling items on platforms like Vinted and eBay, where people sell their old, unwanted possessions rather than throw them away. Sites like Etsy and Airbnb also fall under this category, as you’re selling products or services to others.

When HMRC announced their rule change, stating that platforms had to report on the money that their users were making, a lot of people panicked that they would suddenly be getting taxed whenever they sold their old shirts on Vinted, but this isn’t the case.

The rules on how you’re taxed have not been changed (as they pertain to secondary income), it’s just that HMRC wants to crack down on individuals who are using digital platforms to turn a profit and not pay any extra taxes. The so-called ‘Side Hustle Tax’ therefore doesn’t really exist; it’s just a part of regular income tax.

When Do I Have to Pay Tax?

In the UK, HMRC has a trading allowance of £1,000 per year, and anything below that does not qualify for taxes. If you exceed this allowance, you still might not pay any taxes, depending on how the money was made.

If you list your second home on Airbnb, you’re making an income from it. If you make earrings and sell them on Etsy, you’re making an income from it. If you decide you don’t want your old video games anymore and you put them up on eBay for half of what they originally cost you, you’re not making an income from it.

The key things that HMRC will be looking out for are individuals who are buying items with the express purpose of reselling them for a profit. If you’re scouring charity shops for cheap clothes and putting them on Vinted with a markup, you may have to pay tax on this. Likewise, if you’re putting up items frequently, then HMRC might flag this as an income stream.

How Do I Tell HMRC?

Failing to declare your income is a serious offence and can lead to penalties, interest on unpaid tax, and an investigation by HMRC. If you suspect that your secondary income is over the trading allowance, you should tell HMRC about it, even if it turns out that no additional taxes are due.

You will need to register with HMRC if you’re over the £1,000 trading allowance in a single tax year (these run from 5^th April to 4^th April). You have until 5^th October the following tax year to register for Self-Assessment. You then have until 31^st January to submit your tax return.

You should be able to fill out the necessary forms yourself, but if you’re having trouble understanding what to do, then you can visit Gov.uk for more information.

What About My Main Source of Income?

You’ll need to tell HMRC about your regular employment as well, so they know what you’re making outside of the ‘side hustle’ and how much you’re already paying in income tax and National Insurance. It’s possible that your secondary income will push you into the next tax bracket, which will mean paying a higher rate of tax – but you’ll only pay a higher rate on the amount above that threshold.

Just because HMRC are making platforms report your sales to them, does not mean that HMRC will work out your taxes for you. It’s still up to you to provide them with all the information they need in order to tax you correctly.

HMRC can and do make mistakes, so it’s important that you keep thorough records of everything in order to fill out your Self-Assessment tax form correctly. This includes keeping a record of all of your sales, as well as costs you incurred on postage, platform fees, etc.

The Tax Refund Company are specialists in ensuring employees have been taxed correctly, with more than 4 in 10 employees getting money back after taking advantage of their comprehensive tax review.