Huge change to tax rules that anyone with a side hustle needs to know – or face hefty bill
A HUGE change to tax rules could leave anyone with a side hustle facing a hefty bill.
Whether you rent out your home online, drive for Uber or freelance on Fiverr, your income will soon be reported directly to HMRC.
From January 1, HMRC will direct these platforms to record how much money people make by selling their services on them.
It's all part of a wider tax crackdown from HMRC on people boosting their income via side hustles.
Those with a side hustle will still be expected to fill in a tax return and pay what they owe the HMRC every year.
HMRC will invest £36.69million in this initiative and employ 24 full-time staff to launch and enforce these measures, which aim to "bear down on detect and tackle tax evasion".
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Seb Maley, chief executive of tax insurance provider for self-employed workers, , said of the change: "This legislation has flown under the radar, but will have big implications for anyone renting their place out on Airbnb, freelancing on Upwork or Fiverr, or driving for Uber – whether that’s as a side hustle or full-time job.
"The crux of it is that HMRC doesn't trust the growing number of people with side hustles in the UK to accurately report how much money they're making this way.
"So the tax office will go directly to these platforms, who will become responsible for recording this information and handing it over to HMRC."
HMRC will then be able to use this data as well as any submitted tax returns to work out if there's a discrepancy.
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Seb added: "Needless to say, it's vital that people earning money this way make sure of their tax compliance."
If you lie about your income you could face serious fines.
How do you know if you need to submit a tax return?
Self-assessment is a system HMRC uses to collect income tax.
Tax is usually deducted automatically from wages, pensions and savings, but people and businesses with other incomes must report it in a tax return.
This applies to the following:
- Your income from self-employment was more than £1,000
- Earned more than £2,500 from renting out property
- You or your partner received high income child benefits and either of you had an annual income of more than £50,000
- Received more than £2,500 in other untaxed income, for example from tips or commission
- Are limited company directors
- Are shareholders
- Are employees claiming expenses in excess of £2,500
- Have an annual income over £100,000
Before you can complete and submit your tax return, you'll need to have a so-called unique taxpayer reference (UTR) and activation code from HMRC.
This can take a while to receive, so if it's the first time you're completing a self-assessment, make sure you register online immediately and ask HMRC for advice.
To sign in or register visit the "Self Assessment tax return" section of HMRC's website.
If you've already signed up for self-assessment, you can find your UTR in relevant letters and emails from HMRC.
HMRC accepts your payment on the date you make it, not the date it reaches its account - including on weekends.
The deadline for filing your self-assessment tax return by post is October 31.
If you miss the deadline by up to three months you will be charged a £100 penalty.
If you miss the deadline by over three months you will be charged more on top of this.
But don't worry as if you don't send your paper form on time, you can fill out your tax return online.
You have to do by January 31, 2024.
If you need to change your tax return after you've filed it, you can do so within 12 months of the original deadline or you can write to HMRC for any changes after that.
Filling in your tax return can seem daunting, but with our step-by-step guide you'll have it sorted in no time.
How much can I be fined for filing my taxes late?
Late filing fees are pretty steep, so make sure you get your self-assessment return in before January 31.
According to HMRC, you'll get a £100 fine for failing to file your return a single day after the deadline.
Then, a £10 daily fine applies every day you don't submit your tax return.
This is capped at 90 days - or £900.
So on top of the initial £100 fee, a £1,000 maximum late filing fine applies.
If you're six months late, there's a further £300 fine or 5% of the money you owe - whichever is higher.
That's on top of the daily £10 charges built up so far, so there's no shortcut to a smaller payment once you're late.
And after 12 months, another £300 or 5% fine applies.
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Interest is also added on top of this.
If you deliberately haven't filed your tax return, a fine of up to 100% of the tax due could then be sent too.