Are you paying tax on your side-hustle?

Here’s what HMRC expects

With the cost of living on the rise, many people are turning to side-hustles to bring in some extra cash. From selling clothes on platforms like Vinted to renting out a spare room on Airbnb, side-hustles come in many forms. You might even be offering freelance services, tutoring, or running an online shop. Whatever your side-hustle, it’s a smart way to boost your income.

But earning extra money can come with responsibilities. HMRC is paying closer attention to side-hustles, and it’s important to know where you stand. Are you earning enough to pay tax? If so, how should you report it? In this blog, we’ll explore the tax implications of side-hustles and what HMRC expects from you.

How do I know if my side-hustle is taxable?

What is a side-hustle? A side-hustle is any activity that brings in extra income alongside your main job. It could be selling your handmade crafts on Etsy, renting out your spare room on Airbnb, or offering services like dog walking or gardening. Side-hustles are flexible, informal ways to earn money, but they still fall under HMRC’s tax rules.

These are key factors that indicate whether your activity is organised for profit and if it should be taxed. Here’s what to look at –

Profit motive
Are you running your side-hustle to make money? For example, buying items specifically to sell at a higher price shows a profit motive. If you’re simply selling your old belongings, it’s unlikely to count as trading.

Frequency of transactions
Are you selling regularly, or is it just a one-off? A person selling a few unwanted items from their garage wouldn’t be trading. But someone frequently listing items online or running a service, such as tutoring or dog walking, likely falls into the trading category.

Type of assets sold
Are you selling items typically associated with businesses? Selling personal items like clothes or furniture you no longer need isn’t taxable. On the other hand, buying and selling cars or running a stall for handmade crafts would likely be classed as trading.

Modifications to assets
Have you made changes to the items to improve their value? For instance, cleaning up vintage goods to sell at a higher price or repackaging children’s toys for profit suggests a trading activity. If you sell inherited furniture without altering it, it won’t usually be taxable.

Examples

Not taxable
Clearing out your wardrobe and selling old clothes on Vinted. This is seen as disposing of personal belongings, not trading.

Taxable
Buying vintage clothes at a car boot sale, cleaning or repairing them, and then selling them online for profit. This is trading and requires you to report your income.

Understanding these differences helps you stay compliant and avoid any surprises from HMRC. If your activity aligns with the Badges of Trade, it’s time to think about reporting it as a taxable income.

The side-hustle tax threshold

The Trading Allowance helps define when your income becomes taxable. If your side-hustle earns more than £1,000 before expenses, you’ll need to pay tax on the amount above this threshold. If your earnings stay below £1,000, you don’t need to report them. This allowance is designed to make tax simpler for smaller, occasional side-hustles, but once you cross the threshold, reporting your income is essential.

What’s new since 2024?

Since January 2024, digital platforms like Airbnb, Etsy, and eBay have been required to share user data with HMRC. This includes income details and bank account information. HMRC will compare this data with tax returns to identify unreported earnings. If you earn through these platforms, keep accurate records and ensure your earnings are reported.

How do I stay compliant with HMRC?

1. Register for Self-Assessment – Let HMRC know if your income is taxable. 

2. Keep accurate records – Track your income, expenses, and profits. Save invoices, receipts, and bank statements.

3. Avoid penalties – Failure to report income can lead to fines of up to 100% of the tax owed, late filing penalties, and interest on unpaid tax.

Good record-keeping and timely reporting will save you stress and money.

Extra considerations to think about

Rent-a-Room Relief
If you rent out a furnished room in your main home, you can earn up to £7,500 tax-free under the Rent-a-Room scheme. Income above this threshold must be reported.

Capital Gains Tax (CGT)
Selling valuable personal items like antiques, art, or jewellery could incur CGT if profits exceed the £6,000 annual exemption. Keep records of purchase and sale prices to stay compliant.

How Dux Advisory helps with side-hustle issues

Managing your side-hustle tax doesn’t have to be difficult. At Dux Advisory, we specialise in Self-Assessment, tax planning, and compliance, ensuring you stay on top of your responsibilities.

Don’t let tax worries hold you back. Contact us today for expert guidance. Let’s help you focus on growing your side-hustle while staying compliant with HMRC.

Get in touch with our tax experts today.