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News: UK Government introduces new 'Side Hustle' tax for online marketplaces like Depop and Vinted.
From January 1st 2024, the HMRC have introduced several new tax laws. One in particular affects Britons who have ‘side hustles’ selling or renting items or property on online marketplaces such as Depop, Vinted, Airbnb and Etsy.
What is the ‘Side Hustle’ tax?
In an attempt to avoid tax evasion, the HMRC has introduced two new features for online marketplaces dubbed the ‘Side Hustle’ tax. This tax will now require sellers who make more than £1000 a year to register as a sole trader and pay tax on their earnings. Secondly, UK-based online marketplaces, such as eBay, Vinted, Airbnb etc, will now have to provide more data to HMRC so the governmental body can determine who is meeting this £1000 threshold.
This tax will affect anyone who sells or rents on an online platform, whether you are selling secondhand, handmade items or even renting out your spare room. If you earn over £1000 from your side hustle, you will have to register as a sole trader and pay tax on your earnings.
What does this mean for me?
For those already declaring earnings / those already registered as a sole trader, little will change.
For anyone earning less than £1000 annually, nothing will change but do keep an eye on your net income.
The minute you cross the threshold you will be prompted by HMRC to declare your earnings.
Anyone who earns over £1000 is expected to fill out a tax return, even if you believe you won’t owe any tax.
Those who avoid this will be nudged by HMRC. eBay sellers will now have to supply their National Insurance Number.
Other tax laws in place from January 2024
As announced in the Autumn Statement a few new tax laws are coming into effect this year, with more rumoured changes to be announced in the March Budget by Jeremy Hunt.
Changes to National Insurance Contributions (NIC)
From January 6th the NIC rate for earnings between £12,570 and £50,270 will be cut from 12% to 10%.
From April 6th (the new tax year) those who are self-employed will see their class 2 NICs will be axed altogether and their main NIC will fall from 9% to 8%.
Changes to VAT
- The ‘pink tax’ on period pants will be removed from January 1st. This can be a saving of £2 or 16% per item.
I have a side hustle, what should I do next?
If you have a side hustle but are not yet tracking income or registered, start to keep a tally of how much net profit you earn. The net profit is how much you earn before expenses i.e. postage or cleaning fees. If you earned more than £1000 last year, it may be a good idea to register as a sole trader early, however, you have until January 2025 to do so.
If you are considering taking your side hustle to the next level, you may want to skip the sole trader stage and register as a Limited Company (LTD). This may be more effective in the long run especially if your side hustle were to become your primary income stream, an LTD is more scalable and reputable.
There are many advantages and disadvantages of becoming a sole trader and LTD, and it is up to you to decide the best company type for your business.
Our start-up hub is here to help you determine the ins and outs of business. Or you can contact us today and get expert advice from our customer service team.