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Side Hustlers Tax: HMRC Enforcing New Rules on Gig Economy and Freelancers

Introduction

For those engaged in side hustles and freelance ventures, a notable ‘tax crackdown’ is on the horizon, courtesy of HMRC’s upcoming regulations set to take effect from 1 January 2024. The impact of these rules on individuals earning a secondary income is substantial, and it’s crucial to understand how to navigate these changes to remain compliant.

The impending shift in side hustle tax rules is a response to HMRC’s robust efforts in scrutinizing tax affairs, with significant resources allocated to detect any discrepancies. The tax authority, armed with the authority to examine personal bank accounts, employs sophisticated artificial intelligence systems to amass vast amounts of taxpayer data. As of 1 January 2024, these rules will be further intensified, granting the taxman access to comprehensive information regarding individuals’ supplementary incomes. Understanding the implications and ensuring compliance becomes paramount in light of these evolving regulations.

What is a side hustle?

A side hustle essentially refers to any activity through which you earn money that is not your primary occupation. The concept of side hustles is gaining increasing popularity, likely driven by the rising cost of living, which presents challenges for many individuals in making both ends meet.

Diverse avenues exist for people to generate additional income. Some opt to rent out their properties to holidaymakers using platforms like Airbnb, while others capitalize on their driveways by offering them as parking spaces for commuters. Creative pursuits, such as freelance design or copywriting, serve as alternative channels for earning extra cash. Additionally, some individuals engage in shifts as food delivery couriers or work as drivers for companies like Uber. The range of side hustles is broad, reflecting the various ways people supplement their income beyond their primary job.

The Gig Economy, Freelancers and HMRC

The landscape of the gig economy is set for a notable shift with the impending side hustle tax rules, making it more seamless for HMRC to gain insights into individuals’ secondary incomes. Effective from 1st January 2024, a comprehensive array of apps and websites facilitating side hustles will be obligated to share user details, including bank account information, with the tax authority.

Prominent platforms such as Upwork, Fiverr, and Uber are among those that will fall under the purview of these reporting requirements. While some platforms, like Airbnb, currently disclose user income details to HMRC, the upcoming rules will transform this into an automatic obligation for a broader spectrum of organizations. This signifies a significant development in HMRC’s capacity to monitor and collect information on secondary incomes within the gig economy.

Gearing Up Tax Rules on Gig Workers

In a concerted effort to ensure compliance with side hustle tax rules, HMRC is allocating a substantial £39.9 million for enforcement measures targeting individuals who fail to report their secondary income tax obligations accurately. A dedicated team of 24 specialists will be deployed to identify disparities between income derived from digital platforms and the corresponding tax returns. In instances where discrepancies are identified, HMRC will initiate tax investigations to address non-compliance.

HMRC is gearing up for an extensive tax crackdown on side hustles and the broader gig economy, with the initiative scheduled to come into effect on 1 January 2024. This crackdown will have ramifications for workers and freelancers engaged with platforms such as Uber, Etsy, and Airbnb. Commencing from the aforementioned date, HMRC has mandated platforms, including Uber, Deliveroo, Fiverr, and Upwork, to meticulously record the payments made to individuals and report these earnings directly to HMRC. This proactive approach underscores HMRC’s commitment to ensuring transparency and tax compliance within the evolving landscape of side hustles and the gig economy.

Why is HRMC Imposing Tax on Side Hustlers?

The surge in individuals earning a secondary income through freelancing and side hustles in the UK since the COVID-19 lockdowns have prompted HMRC to initiate a crackdown. According to a Fiverr survey of 2,000 UK workers, a notable 58% of those earning additional income embarked on side hustles post-March 2020. This substantial increase in secondary income earners has raised concerns at HMRC, with the apprehension that individuals might not accurately report their earnings, potentially resulting in uncollected tax revenues.

Seb Maley succinctly captures the essence of the issue by asserting, “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. So, the tax office will go directly to these platforms, who will become responsible for recording this information and handing it over to HMRC.” In essence, Maley suggests that platforms linking freelancers and gig workers with customers will be mandated to record their users’ income and furnish this data to HMRC, as part of the tax authority’s strategy to address the reporting accuracy concerns associated with the burgeoning side hustle landscape.

The Impacts of These Rules on the Site Hustlers and Gig Workers

While the new rules indicate a shift in responsibility for reporting income, freelancers and gig workers remain obligated to complete their own tax returns. HMRC’s intention behind these rules is to verify that individuals’ self-reported income aligns with the data provided by the platforms, ensuring comprehensive coverage of tax liabilities.

Freelancers must, therefore, uphold tax compliance by diligently submitting their Self-Assessment tax returns annually and fulfilling their income tax and national insurance obligations. Neglecting this responsibility may result in investigations and potential penalties. It’s crucial to note that anyone earning more than £1,000 per annum from their side hustles should already be reporting their earnings to HMRC through the self-assessment process.

Failing to notify HMRC of tax liabilities could lead to a ‘failure to notify’ penalty, with the penalty amount calculated based on the percentage of potential lost revenue. This underscores the importance for freelancers and gig workers to proactively manage their tax responsibilities, ensuring timely and accurate reporting to avoid legal repercussions.

Who is Affected by the New Tax Rules?

If you engage in a side hustle, it is imperative to understand the implications of the new side hustle tax rules and ensure accurate reporting and payment of taxes. Individuals are permitted to earn up to £1,000 per year from self-employment without incurring tax, a provision known as the Minimum Trading Allowance. However, if your earnings exceed this threshold, it becomes necessary to complete a Self-Assessment Tax Return and settle any income tax and national insurance obligations.

Failure to adhere to these requirements can result in substantial penalties and fines. With an estimated 7.25 million gig workers in the UK, the scope of the new rules is extensive, impacting a significant number of individuals. It underscores the importance for those involved in side hustles to stay informed about their tax obligations, ensuring compliance to avoid legal consequences.

What should do next if you are eligible?

If your earnings from a side hustle exceed £1,000 per year, your initial step should involve registering for Self-Assessment. If assistance is needed in this process, we can provide support. Subsequently, if you have earned income that has not been declared, it is crucial to rectify this by making the necessary declarations. Taking this proactive approach increases the likelihood of facing lower penalties. Conversely, if HMRC uncovers undeclared income during an investigation, the resultant financial consequences are likely to be more severe. For guidance in such situations, feel free to seek advice from us.

Finally, if your side hustle is experiencing growth and you require guidance on expanding your business, reach out to one of our accountants today. We have a track record of assisting numerous small start-ups in evolving into established firms with turnovers ranging from hundreds of thousands to sometimes millions of pounds. Our expertise can be instrumental in navigating the complexities of business growth and development.

Get Support from an Expert Team

Remaining informed about the changes in side hustle tax rules and compliance within the gig economy is crucial for individuals involved in such ventures. Seek professional advice as needed to ensure accurate reporting and adherence to regulatory requirements.

Our commitment is to furnish you with the latest information and guidance, empowering you to navigate these changes seamlessly. Feel free to contact our tax experts for assistance and clarification. You can reach us by calling 0161 464 6067 or by sending an email. We are here to support you in understanding and complying with the evolving tax landscape related to side hustles and gig work.

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