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Deadline approaches to declare additional income

| Duncan & Toplis | 12 January 2024

HMRC has issued ‘nudge’ letters specifically to online traders and those who deal with crypto-currency.

UK taxpayers earning £1,000 or more outside of their official source of income have just over two weeks to declare their ‘additional earnings’ to HMRC - or risk having to pay triple the amount in penalties.

31 January 2024 marks the deadline for confirming any additional income you have earned for the 2022-2023 tax year. If you sell or trade online, or rent out properties through platforms like Airbnb, and exceed the tax-free allowance of £1,000, you may need to fill in a Self Assessment form.

Failure to do this by the deadline could land you with a hefty fine; you could be liable to pay the amount outstanding and a further penalty of up to double that amount.

New ‘side hustle tax’ a myth - but the deadline for self-assessments is very real

While there has been a lot of buzz around the government introducing a new ‘side hustle tax’ on people selling second-hand goods and clothing online, this is misleading - there have been no new tax rules for people trading or selling goods online, such as secondhand clothing or cryptocurrency assets. What has changed, however, is that those platforms now need to automatically keep tabs on how much you make per year and pass their information on to HMRC.

Theoretically, if you use platforms such as Vinted or Depop to sell clothing or sell products or services through sites such as Etsy, eToro, AirBnB, and Fortrade, you should be declaring any additional income to HMRC on an annual basis. However, many people are not aware of this, and these websites weren’t previously obliged to share this information with HMRC so the rules were hard to enforce.

So, what are the rules and the exceptions when it comes to online trading? Let’s explore.

When should you pay tax on additional income?

If you earn money (that is not from your official employer) for any of the below, it is vital that you check your earnings and whether or not you must declare them. These include:

  • selling goods, such as at car boot sales, auctions, or online
  • working casually for money, such as gardening, food delivery, or babysitting
  • renting out your tools (such as lawnmowers, etc) or charging other people to use them
  • renting out property or part of your home, including for holidays (for example, through Airbnb, SpareRoom, or another online vendor)
  • creating content online, for example on social media; this includes sponsored posts on platforms such as Facebook and Instagram, as well as live video streaming channels 

Similar rules apply to cryptocurrency users and owners of virtual assets.

You may be liable to pay income tax if you:

  • receive crypto assets from your employer in a way that could generate income 
  • sell or exchange crypto assets, including for money or the receipt of one asset when traded for another
  • use crypto assets to make online purchases 
  • gift crypto assets to another person or donating crypto assets to charity

Yearly tax-free allowance for additional income

However, not everything you buy or trade online is taxable. If you are simply selling your own personal items, such as used clothes, an old TV or stereo, or unwanted furniture, you will not need to pay income tax. As long as you remain below the tax-free threshold of £1,000.

According to HMRC, you’re only liable to pay tax on the goods or services you sell online if you are “trading or making a capital gain.” In other words, “if you are just selling some unwanted items that have been lying around your home, such as the contents of a loft or garage, it is unlikely that you will have to pay tax.”

So, if you’re having a much-needed clear-out or an occasional declutter, you’re very unlikely to need to declare this income to HMRC - if you do not earn more than the £1,000 allowance, that is. 

Once you exceed this amount, you are deemed to be actively trading and will need to tread carefully to avoid prosecution if you do not declare your earnings in full. Even if you ultimately make a loss (i.e. the goods you sell for over £1,000 in total cost more to purchase originally), the platforms will report this to HMRC and this additional income will be taxable. 

If you are selling larger items, such as a used car or high-value goods, you may be liable to pay capital gains tax if it is sold for £6,000 or more.

Automatic reporting is not retrospective

While online trading platforms are now legally required to share details of your additional income from using them, this is only in force as of 1 January 2024. So, if you have breached the £1,000 tax-free allowance for 2022-2023, you will still need to declare this yourself manually.

If this is the case, you have until 31 January to file a Self-Assessment form. If you are unsure of whether you fall within this threshold, you can check if you are liable to pay on HMRC’s official calculator tool.

Similarly, if you buy or trade cryptocurrency or other virtual assets, you can check your eligibility to pay on HMRC’s website.

If you’re concerned or confused about whether or not you may be liable to declare your additional income to avoid penalties, get in touch with our expert team today.

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