Changes in Taxation for Supplementary Income

For individuals engaged in additional income streams alongside their regular employment or those participating in sales through popular resale platforms such as eBay, Vinted, or Etsy, recent modifications in tax reporting, often referred to as the 'Side Hustle Tax,' have garnered attention.

New regulations have been implemented, altering the way certain resale companies, including Vinted, eBay, and Etsy, relay transaction data to HMRC. Initial reports suggested the imposition of a new tax specifically for side hustles, leading to concerns about potential financial implications.

What’s Changing and How it Affects You
There are no additional tax obligations for individuals engaged in selling second-hand items on resale websites. The quantum of tax owed on earnings from side hustles and the associated payment timelines remain unaffected by these new regulations.

Under the updated rules, digital platforms are now mandated to collect and report transaction and income information to HMRC. This reporting must be completed by January 2025, a year following the rule change. Digital platforms encompass apps or websites connecting sellers directly to buyers, encompassing popular platforms such as Vinted, Etsy, eBay, and Not On The High Street.

For individuals selling goods or providing services through these platforms, HMRC gains visibility into transactions and their values. Sellers will receive a copy of this information, facilitating a self-assessment of tax obligations arising from their sales.

The regulatory alterations align with the UK’s commitment to a global agreement by the Organisation for Economic Cooperation and Development (OECD), facilitating the sharing of tax-related information across international jurisdictions.

Understanding Tax Implications
To incur tax on online sales, individuals must either be ‘trading’ akin to a business or realize capital gains from selling or disposing of an asset. While those transforming their side hustle into a regular business may be subject to taxation, selling occasional unwanted items below a certain value typically does not attract tax liability.

If the total income from online trading or services remains below £1,000 before deducting expenses in any tax year, individuals are not required to report side hustle income to HMRC, and no tax is levied on the profits.

While platforms like Vinted do not automatically share data with HMRC for sellers of fewer than 30 items a year or with total earnings below £1,700, individuals earning £1,000 or more from online sales in a given year may still be liable for tax. Maintaining detailed records of sales, even under the £1,000 limit, is advisable in case proof of income is requested.

Determining Tax Obligations
Assessing whether tax obligations apply to a side hustle involves determining whether one is engaged in ‘trading’ as a business. The UK Government provides guidance to help individuals distinguish between trading and simply selling items online.

Examples to Consider:
1. Reselling used clothes (or other items) – Unlikely to be considered trading.
2. Buying to resell – Likely to be considered trading.
3. Making and selling – Likely to be considered trading.
Individuals classified as trading are required to declare profits through a self-assessment tax return and pay tax on their earnings.

Potential Tax Reimbursement
For those deemed as ‘trading’ with a tax obligation, there may be opportunities to claim allowable expenses, reducing the overall tax liability. Allowable expenses are costs incurred explicitly for business or side hustle operations, such as business overheads, travel related to the business, or business insurance.

Understanding allowable expenses ensures accurate tax payments when completing the self-assessment tax return at the end of the tax year. Refer to our guide on self-employed allowable expenses for detailed information on what expenses can be claimed.

Ready to navigate the complexities of taxation for your supplementary income? Bush & Co is here to help! Take advantage of our expert services, including assistance with tax returns. Contact one of our experienced team members today.

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